ITV Delivers Strong Operational Performance in an Uncertain Economic Environment

Home , 12 Yard, 5 Gold Rings, Carlton Communications, Carlton Food Network, ITV3, ITV4

for the year ended 31 December 2017 December 31 ended year the for Accounts and Report Annual plc ITV

ITV delivers strong operational performance in an uncertain economic environment

ITV plc Annual Report and Accounts for the year ended 31 December 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 We are an integrated producer broadcaster, creating, owning and distributing high-quality content on multiple platforms.

Contents

Strategic Report 2017 Highlights 2 Provides a comprehensive ITV at a Glance 4 review of ITV’s business Chairman’s Statement 6 and strategy. Investor Proposition 8 Market Review 10 Chief Executive’s Report 14 Our Strategy and Business Model 18 Corporate Responsibility 20 Operating and Performance Review 22 Alternative Performance Measures 34 Key Performance Indicators 36 Finance Review 40 Risks and Uncertainties 50

Governance Chairman’s Governance Statement 60 Presents a clear view Board of Directors 62 of ITV’s governance. Management Board 64 Corporate Governance 66 Audit and Risk Committee Report 72 Remuneration Report 82 Directors’ Report 98

Financial Statements Financial Statements 107 ITV’s audited financial Independent Auditor’s Report 108 statements for the year Primary Statements 114 ended 31 December 2017. ITV plc Company Financial Statements 179 Corporate website We maintain a corporate website at www.itvplc.com containing our Additional Information Glossary 194 financial results and a wide range of information of interest to institutional and private investors. Strategic Report The Strategic Report explains in detail how we have performed this year and sets out a fair review of the business, a balanced and comprehensive analysis of our performance, the use of key performance indicators to explain the progress we have made, a description of the principal risks and uncertainties facing the Company, and an indication of potential future developments. The Strategic Report is prepared in line with the relevant provisions of the Companies Act 2006 and the Company has had regard to the guidance issued by the Financial Reporting Council. It is intended to provide shareholders with a better understanding of the Company, of its position in the markets within which it operates, and of its prospects. In setting out the Company’s main risks and uncertainties, an indication of potential future developments, and in other content, this report and accounts contains statements that are based on knowledge and information available at the date of preparation of the Strategic Report, and what are believed to be reasonable judgements, and therefore cannot be considered as indications of likelihood or certainty. A wide range of factors may cause the actual outcomes and results to differ materially from those contained within, or implied by, these various forward-looking statements. None of these statements should be construed as a profit forecast.

Contents page: Liar Front cover: The Voice UK WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Contents Strategic Report

Chairman’s Business See 18 Statement model page See page 6

Finance Chief Executive’s Review Report Governance See page 40 See page 14

How we Financial Statements

Key manage risk e – business fenc divi de sio f ns o , G es r Our performance in o l u e p e f r Management u See page 50 h n Read more content within T c : and Divisional t e io c Boards n n s a this report ,

r I n in 2017 u t s e s r

A n

a u

The Board d

n Read more content online

See page 22 i

t a

e Operational Audit p

O Risk Steering and Risk Group Committee Key ﬁnancial highlights

Group external revenue1 Non-NAR revenue2 Adjusted EBITA3 £3,132m (+2%) £2,066m (+11%) £842m (-5%) (2016: £3,064m) (2016: £1,855m) (2016: £885m) Additional information

Adjusted EPS Statutory EPS Dividend per share p (ordinary) 16.0p (-6%) 10.2p (-9%) 7.8p (+8%) (2016: 17.0p) (2016: 11.2p) (2016: 7.2p)

Notes Alternative Performance Measures: We use both statutory and adjusted measures in our Strategic Report, the latter of which, in management’s view, reflects the underlying performance of the business and provides a more meaningful comparison of how the business is managed and measured day-to-day. A full reconciliation between our reported and adjusted results is provided in our Alternative Performance Measures defnitions on pages 34 and 35. Our KPIs are set out on pages 36 to 39. 1. The Strategic Report also refers to total revenue, which includes all ITV revenue, both internal and external. 2. Non-Net Advertising Revenue (Non-NAR) includes all ITV revenue, both internal and external, except Net Advertising Revenue (NAR). 3. EBITA before exceptional items has been adjusted to reflect the inclusion of production tax credits (‘adjusted EBITA’). Statutory EBITA is £810 million (2016: £857 million) and statutory proft before tax is £500 million (2016: £553 million).

1 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

2017 ITV delivered another strong performance Highlights in 2017 as we continued to strengthen, rebalance and grow the business.

62 ITV formats sold in 2017

66% of ITV original I’m A Celebrity... commissions Get Me Out Of Here! supplied by The 17th series averaged 10 million ITV Studios viewers and a 38% share. It was the most watched series for 16–34s on any channel in 2017, with 2.5 million viewers 239 and a 54% share. new commissions & 240 recommissions Cold Feet returned for a second series, averaging 5.1 million viewers and a 21% share. It has been recommissioned for a third series.

Broadchurch was the most watched drama in 2017. It averaged 10.7 million viewers and a 36% share, over a million more viewers than the previous two series.

The Chase goes from strength to strength with an average Good Morning Britain achieved a 19% share of viewing in 3.2 million viewers and a 25% share in 2017. The format was sold 2017, which was its highest ever share since it launched in 2010. to four countries in 2017.

2 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 2017 Highlights Strategic Report

American Dad, Family Guy and The Cleveland Show continue to perform

well on ITV2, attracting a combined average Governance share of 11% of 16–34s in 2017.

Love Island averaged 2.5 million viewers, with a 34% share of 16–34s and 43% of 16–24s. It had the biggest 16-24 audience of all digital channels in 2017. 21.7% share of viewing for the ITV Family, up from 21.3% StatementsFinancial in 2016

+17% Coronation Street remains the most watched increase in ITV2’s 16–34s soap in the UK. It averaged 7.6 million viewers in 2017 and a 35% share, which was up one share share of commercial point year-on-year. impacts Additional information Additional

The Voice launched on ITV in 2017 and +34% averaged 5.6 million viewers and a 24% share, with a 29% share for 16–34s. The Voice format increase in has been sold to 65 counties. long-form video requests

In 2017 99% of all commercial audiences over 5 million were on ITV

3 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

ITV at ITV, as an integrated producer broadcaster, a glance creates, owns and distributes high-quality content on multiple platforms globally.

We operate the largest Broadcast & commercial family of channels Online 47.6 % in the UK and deliver our content through linear television largest share broadcasting as well as on of the UK TV advertising market demand via the ITV Hub and across other platforms globally.

ITV broadcasts a wide variety of content on its family of free-to-air channels. 21.7% Our investment in programming is primarily funded by television advertising share of viewing revenue. ITV has the largest share of for the ITV Family in 2017 the UK television advertising market, with a share of broadcast (SOB) of 47.6% in 2017. We sell all of our key demographics across 13 regional licences. 21m registered users of the ITV Hub

ITV Studios We have built signiﬁcant + hrs scale in key creative markets 8,400 around the world, creating of original content produced and producing programmes and delivered in 2017 and formats that return and travel, namely drama, entertainment and factual + entertainment. 50 labels ITV Studios creates and produces content in the UK and internationally, in 11 different countries supplying while our distribution business, over 200 channels Global Entertainment, sells ﬁnished programmes and formats worldwide.

62 ITV formats sold in 2017

4 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 ITV at a glance

ITV total revenue ITV adjusted EBITA Strategic Report (inc. internal revenue)

Broadcast & Online £2,075m Broadcast & Online £599m ITV Studios £1,582m ITV Studios £243m

The family of channels attracted a In addition to linear broadcast, ITV delivers ITV has the ITV Hub+ which is a total share of viewing (SOV) of 21.7% its content across multiple platforms. Subscription Video on Demand (SVOD) in 2017, the largest audience of any This is either through our over-the-top service where subscribers have access UK commercial broadcaster. Our main (OTT) service the ITV Hub, available on 29 to advertising free content and the channel is the largest commercial channel platforms including ITV’s website (itv.com), ability to download catch up content. in the UK, delivering 99% of all commercial pay providers such as Virgin and Sky and

audiences over ﬁve million. through direct content deals with services We have partnered with the BBC to Governance such as Amazon, Apple and Netflix. launch a new SVOD service, ‘BritBox’, in the US and Canada. The streaming service allows subscribers to access the best of British television.

Our free-to-air digital channels provide We also own a best of British SVOD more targeted demographics for service, Cirkus, in the Nordics and advertisers, such as 16–34s, ABC1s, Germany, and an online service, ITV Men and Housewives with Children, and Choice, an entertainment channel consist of ITV2 and ITV3, the two largest for emerging markets available in digital channels in the UK, ITV4, CITV 100 countries. and ITVBe. We also have high deﬁnition versions of our digital channels available on pay platforms. Financial StatementsFinancial

ITV Studios UK ITV America

ITV Studios UK is the largest commercial producer in the UK. ITV America is the largest independent producer of unscripted We produce programming across a diverse range of genres content in the US. We are also growing our presence in scripted such as drama, entertainment and factual entertainment for content, using our strong cash flows to produce high-proﬁle ITV’s own channels, as well as for other UK broadcasters such dramas with the potential to travel and build international appeal. as the BBC, Channel 4, Channel 5 and Sky. Additional information Additional

ITV Studios Rest of World Global Entertainment

ITV Studios also operates in the Netherlands (through Global Entertainment, ITV’s distribution business, owns the Talpa Media), Germany, France, Italy, Australia and the Nordics. rights to ITV programmes and formats and acquires third-party Talpa produces and distributes entertainment formats while content, distributing this to other broadcasters and platforms the other businesses produce scripted and unscripted content for internationally. Within this business, we also ﬁnance productions local broadcasters in these regions. This content is either created for ITV and third parties to acquire global distribution rights. locally or are formats that have been created elsewhere by ITV, primarily the UK and Talpa.

5 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Chairman’s We’re reporting on a challenging year, Statement but one in which ITV has made signifcant progress.

ITV delivered a strong operating performance with great on-screen and online viewing. Against this, net advertising revenue (NAR) reacted to political and economic uncertainty, contracting by just under 5% (though, as we report, this trend improved towards the end of the period).

Our rebalanced company saw continued growth in non-NAR revenues – from sponsorship, from digital and from production, both at home and abroad. We thank our former Chief Executive, Adam Crozier, along with the executive team for these important advances. And I’m very grateful to Ian Griffths, who added the role of Chief Operating Offcer to Group Finance Director.

ITV’s mass commercial audience is at the heart of our offer to viewers and advertisers. We own the only such mass audience in the UK. We’ve now grown our share of television viewing for two years in a row. And our broadcast schedule offers the most trusted medium of brand advertising: where an ‘impact’ is watching an entire, full screen, advertisement with the sound up; where no impacts are fake; where a brand is guaranteed adjacency to trusted content; and where there’s no ad-blocking. Meanwhile, ITV Studios now produces for over 200 channels in 11 countries around the world.

This underlines the enduring strengths on which we’ll build our new revenue streams in the future. So with our strong balance sheet we’re able to deliver good returns to shareholders while also investing in that future. In line with our dividend policy and reflecting the Board’s confdence in the business and the outlook for 2018, the Board is proposing a fnal dividend of 5.28p, which equates to a full year dividend of 7.8p, up 8%.

Sir Peter Bazalgette Chairman

6 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Chairman’s Statement Strategic Report

Dividend As we work hard on ITV’s next chapter of Our award-winning daytime shows, thriving Dividend per share p (ordinary) growth, we are thinking about our digital soaps and major dramas are a vital part of 7.8p competitors. And we see just as many Britain’s national conversation, exploring opportunities to seize as threats to ward off. topical social issues that defne our culture. Netflix and Amazon may compete with us for And as a major employer of creative talent viewers, but they also buy our programmes in Manchester, Leeds and London, our role 7.8p 7.2 and co-produce major new series. in the nation’s growing creative economy

% is very important to us. Governance

6.0 8 YoY Talking of that future, we were delighted 4.7 to welcome Carolyn McCall as our new I’d like to thank my Board colleagues for

3.5 Chief Executive at the beginning of 2018. their valuable support and input during 2017. 2.6 +7.8 p Investors will be familiar with her background We welcome Margaret Ewing as our vastly 1.6 increase in media, her experience of direct to experienced new Chair of the Audit and Risk on 2010 10 11 12 13 14 15 16 17 consumer relationships and use of consumer Committee. And we shortly bid farewell data, her ability to design and implement to Andy Haste and John Ormerod, each of astute strategy and her understanding of them having committed ten fruitful years what it is to run an international company. to the Company. We have a clear plan to In short, she’s someone with a track continue to improve the diversity of the record of delivering value to shareholders. Board. At the time of writing, our gender As she explains, she’s already started her balance is now 40% female and 60% male. strategy refresh. And we intend in the medium term also to widen our ethnic diversity beyond our Today, there’s quite rightly a growing current one BAME member. emphasis on company culture and social

purpose. These are qualities ITV, as a Public Finally, on behalf of the Board, I want to StatementsFinancial Service Broadcaster, has always kept front thank all ITV colleagues for their excellent of mind – hand in hand with entertainment. contribution in 2017. With that quality of But now they’re in even sharper focus. As a commitment, we’ll prosper in the future. producer of trusted, sourced national news, regional news and current affairs in an age of fake news, we take our contribution to Sir Peter Bazalgette a functioning democracy very seriously. Chairman Additional information Additional

Joanna Lumley’s India was a three-part documentary broadcast on ITV in 2017.

7 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Investor ITV continues to make signiﬁcant progress Proposition in growing and strengthening the business creatively, commercially and ﬁnancially.

A strong As an integrated producer broadcaster, ITV is in a unique position to create and own world-class content, broadcast it on one of the platform biggest marketing platforms in the UK and distribute it globally for delivery through its international network. ITV is an increasingly global and diversifed organisation, with signifcant non-advertising revenue streams reducing its dependency on UK advertising. ITV has delivered a strong operational and fnancial performance over many years and is in a good position to continue to do this, underpinned by its strategic assets and competitive advantage. ITV is currently undertaking a strategic refresh to ensure it has a clear strategy and priorities which reflect what ITV needs to be in three, fve and ten years’ time.

Strong market The Broadcast & Online business is robust. Our on-screen and online viewing performance is strong and we continue to deliver unrivalled position audience scale and reach for advertisers as well as more targeted demographics on our digital channels and on the ITV Hub. Online, Pay & Interactive is a material, fast-growing and proftable part of the business and we are building our digital business through our direct to consumer SVOD services BritBox, Cirkus and the ITV Hub+. ITV Studios, our international content business, is now a global player of scale, creating, owning and managing rights and we will continue to grow in key creative markets, driving value from the strong demand for quality content.

99% 54% of all commercial audiences of total ITV Studios revenue was over 5 million were on ITV from outside the UK in 2017

8 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Investor Proposition Strategic Report

Highly cash We are a highly cash generative business and our disciplined generative approach to cash, costs and capital gives us a strong balance sheet and enables us to continue to invest across the business. Governance

Investment In line with our strategic refresh and key priorities, we will explore opportunities investment opportunities to develop and grow the business and enhance shareholder value while maintaining capital discipline.

Compelling The Board is committed to a long-term sustainable dividend policy. shareholder Ordinary dividends will grow broadly in line with earnings, targeting dividend cover of around 2x adjusted earnings per share over the returns medium term. StatementsFinancial

8% growth in the ordinary dividend year-on-year

Clockwise from top left: Tokio Myers, winner

of Britain’s Got Talent in 2017; England versus information Additional Slovakia in the World Cup Qualifers; new ITV Studios drama, Bancroft.

9 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Market The market environment in which we operate Review is rapidly changing and becoming increasingly competitive. Consolidation of media and telecoms companies, the increasing influence of technology and the evolution in the way viewers consume media, what they watch, when they watch it and how they watch it, bring both challenges and opportunities.

Over recent years, there has been a signifcant change in the availability and delivery Key market of content with a substantial increase in the number of ways to watch television, with viewers able to choose a variety of platforms, both free and pay to watch live, catch up trends and box set content. This has led to the rapid growth of online viewing. However, linear television viewing remains resilient and is still the most popular way to consume content for all demographics.

The proliferation of channels, platforms and new entrants has caused a signifcant increase in the global demand for content, with spend growing on high-quality programming. We estimate that the global content market is growing at around 5% per annum, with some genres such as drama rising faster than others.

This growth can be attributed to a number of factors, including: a larger international pay television market; the consolidation of pay providers with content companies and distributors coupled with the convergence in the television market, where telecoms and new media companies are competing with traditional media companies for content and viewers; online players such as Netflix and Amazon investing heavily in new original content; and online advertising driven platforms such as Google and Facebook creating a new market for short form and digital content.

Global content The US is by far the largest content market in the world, dominating the global production sector, with the UK the second largest market. This represents a signifcant opportunity for ITV Studios, which has a strong presence in both regions.

Demand for drama, particularly US drama, has increased signifcantly in the last few years. Original scripted content is brand defning for broadcasters and OTT players in an increasingly competitive global environment. US studios continue to dominate the market for drama in the US and internationally. However, the rise of Netflix and Amazon, which are investing heavily in creating high-quality original scripted content, has signifcantly increased competition in the market.

Suburra is the frst original Italian Netflix crime drama produced by Cattleya, which was acquired by ITV Studios in 2017.

10 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Market Review

This increased competition, coupled with the fact that viewers are now expecting higher Strategic Report quality content, has driven up the cost of production. Defcit fnancing and co-productions or partnerships have therefore become increasingly important in fnancing productions, where distributors are often funding the difference between what the content buyer is paying for the original broadcast and the cost of production. This defcit is covered through global sales, our windowing strategy of making content available in different territories, on different broadcast platforms and at different times, either exclusively or non-exclusively along with sales to OTT platforms. As a distributor as well as a producer, ITV is in a strong position to defcit fnance its own productions and therefore produce high-quality content and retain the rights to it as well as acquiring rights for third-party productions.

Leveraging our network relationships and international distribution network, we have expanded our global scripted business and developed a strong portfolio of international and returning drama. We are taking advantage of the increased demand from OTT platforms and other viewing windows around the world, with our UK and US studios having a number Good Witch is a scripted format produced by of original commissions confrmed or in the pipeline for international distribution in 2018 ITV America for the Hallmark channel in the US. and beyond. Confrmed commissions for international rights outside of the UK include

It will go into its fourth season in 2018. Harlots (S2) for Hulu, Vanity Fair and War of the Worlds for Amazon and Robozuna for Governance Netflix. In the UK, these programmes will be broadcast on either ITV or the BBC. The OTT deals for international distribution will make Netflix the biggest customer for our Global Entertainment business in 2018.

ITV America has developed several scripted programmes over the last few years and has a healthy pipeline of content in development. Our 2017 scripted deliveries included Good Witch, Sun Records, Somewhere Between and a pilot of Snowpiercer. 2018 deliveries and beyond are expected to include a fourth series of Good Witch and a ten-part series of Snowpiercer.

In the UK, there is stronger demand and higher viewing fgures for UK content over imported series. We are a major producer of scripted content and have further reinforced this position through our acquisition of World Productions in 2017. Our 2017 scripted deliveries in the UK included Victoria, Cold Feet, Poldark, Unforgotten, The Loch and Fearless. Scripted deliveries in 2018 include Vanity Fair, Next of Kin, Trauma, The City And The City, Poldark (S4), Unforgotten (S3) and The Bodyguard, all of which have international appeal. Financial StatementsFinancial In Europe, we have seen a resurgence in demand for local scripted content because acquired US content is not performing as well as it has historically on broadcast channels. There is now also global demand for high-quality, foreign language scripted content. As such, we have strengthened our position in this area through our acquisitions of Tetra Media Studio in France and Cattleya in Italy along with our investment in Apple Tree Productions, a Danish scripted production company. These acquisitions produce long-running, critically acclaimed foreign-language dramas for free-to-air, pay and OTT platforms locally and internationally. Hell’s Kitchen has been a huge international Titles include Proflage for TF1, Gomorrah for Sky Italia and Suburra for Netflix and Rai. success with 38 format sales worldwide over the last ten years. While not growing as quickly as scripted content, demand for unscripted content remains strong as networks continue to require lower cost, high volume popular series. The UK remains the dominant producer of unique unscripted formats.

Along with the established entertainment and factual entertainment genres, unscripted reality programming, where we have focused our US acquisitions, has grown quickly with formats such as Real Housewives, Four Weddings, The First 48 and Alone. OTT platforms

have also started to supplement their catalogue with unscripted titles, which provides information Additional a lower cost alternative to expensive scripted titles. In 2018, we will have multiple original unscripted commissions in production or development including; Queer Eye for the Straight Guy, and Girl Incarcerated with Netflix and several shows in development with Facebook.

ITV is now a genuine global player in unscripted content, being a leading unscripted independent producer in the US and Europe as well as the largest commercial production company in the UK. The large independent production companies, such as Endemol Shine Group and Fremantle Media, continue to be ITV Studios’ main competitors in non-scripted content.

11 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Market Review continued

Broadcast television and digital Changes in viewing habits The multiple ways in which viewers are now able to watch content has impacted viewing habits globally and we have seen a signifcant increase in OTT viewing as a result. This varies by demographic with younger viewers spending proportionately more time consuming video content on non-TV devices (such as smartphones, games consoles and tablets) compared with older demographics who spend more time on linear television.

Digital viewing, while currently only a small proportion of total viewing, is growing fast, particularly via OTT services such as Netflix and Amazon, which have seen exponential growth over the last few years. We continue to invest in ITV’s online offering, the ITV Hub, along with rolling out our SVOD services, BritBox in the US and Canada, and Cirkus in the Nordics and Germany, to enable us to compete in this market.

Linear television viewing In the UK, linear television viewing still remains the most popular form of media entertainment. UK average linear television viewing in 2017 was 203 minutes per day, down from 212 minutes in 2016. The decline is partly driven by the absence of a major sporting event in 2017 and is similar to 2013 (a no sporting year), which also saw a nine minute decline in average viewing year-on-year. The average for 16–34s was 123 minutes per day which declined by 11% (2016: 138 minutes). The corresponding decline for 16–34s across the ITV family of channels was 5% and as such ITV saw share growth for this demographic year-on-year (Source: BARB). Younger viewers are more skewed to watching content outside of the seven-day BARB measurement window and often on non-TV devices and as such this viewing is not currently captured by BARB (further detail below). While it is clear that younger viewers do watch less linear television than other demographics, if the right content is delivered, they will watch it either via linear television or online. Love Island on ITV2 was an example of this in 2017, with an average of 1.4 million 16–34s viewers across the series and 0.9 million 16–34s catch up requests online per day.

Linear Television viewing ITV competes for linear viewers with the BBC and commercial broadcasters including SOV by broadcaster Channel 4, Sky and Channel 5. ITV and BBC1 continue to be the only channels consistently ITV Family 21.7% able to deliver mass audiences as well as targeted demographics, and in 2017, ITV again BBC Family 31.4% delivered 99% of all commercial audiences over fve million viewers and 96% over Channel 4 Family 10.5% three million. Five Family 6.5% Sky Family 8.0% In 2017, the ITV family of channels increased their SOV to 21.7% (2016: 21.3%) and is second Other 21.9% only to the BBC’s Family of channels at 31.4% which lost share during the year (2016: 31.9%) due to the move of key entertainment shows from BBC1 to commercial broadcasters.

Source: BARB Digital viewing Digital viewing includes catch up viewing of broadcaster content via the television set or other devices, such as tablets and mobiles and video on demand (VOD) delivery of other long-form content such as box sets and movies via services such as Sky, Netflix and Amazon.

Non-linear viewing While digital viewing has grown fast, it still accounts for a small proportion of total viewing Long-form content viewing time. In the UK, we estimate 75% of all viewing of legal long-form content is live (excluding online simulcast viewing) (2016: 79%), with a further 13% timeshifted via a Personal Video Live (including simulcast) 75% Recorder (PVR) and watched within 28 days of the original broadcast date (2016: 12%). Timeshifted (PVR) Of the estimated 12% of content viewed on demand (2016: 9%), 4% is catch up viewing of up to 28 days 13% broadcaster content via the television set or to other devices such as tablets and mobiles VOD: Broadcaster (2016: 4%). The remaining 8% of content is other VOD viewing, where viewing of box sets catch up 4% via services such as Sky, Netflix and Amazon are replacing viewing of DVDs (2016: 5%). VOD: Other 8% This is growing quickly, driven by accessibility of these services on smartphones, tablets and connected televisions, which allows viewers to watch content whenever and wherever Source: 2017 BARB/Thinkbox data they want.

12 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Market Review Strategic Report

Pay television There is currently no industry measure for online viewing in the UK. BARB is developing a joint-industry, audited measure of online viewing across all devices used to watch content, The platform which will include viewing across PCs, tablets and smartphones. Initial fndings from this mix in the UK project are expected to be published during 2018. is roughly 50% Pay television free-to-air Free-to-air television in the UK is delivered through services including Freeview, YouView and Freesat, while linear pay television is delivered through operators such as Sky, BT, Virgin Governance and 50% linear and TalkTalk. The platform mix between free-to-air and linear pay television has remained constant for a number of years at around 50:50. The market dynamics of the pay market pay TV are changing as established pay television providers such as Sky and Virgin face increasing competition from BT and OTT providers Netflix and Amazon.

Increasingly homes are supplementing their free and pay television with other forms of paid content including SVOD services such as Netflix, or by purchasing additional channels through ‘no-contract’ providers such as Now TV or TalkTalk TV Store. Around 30% of homes in the UK have an SVOD service and this is weighted towards those homes that have linear pay TV (Source: BARB). Including SVOD pay services, the platform mix in the UK is roughly 40% free-to-air and 60% paid viewing, which is unchanged from 2016.

ITV earns revenue from various third parties, including Sky and Virgin, through the licensing of channels and content, including our HD digital channels (ITV2 HD, ITV3 HD and ITV4 HD) and catch up VOD.

ITV has also launched BritBox, a SVOD service in the US and Canada, which is a joint venture StatementsFinancial with the BBC. The service offers a signifcant amount of content from both broadcasters and gives ITV access to the fast-growing SVOD market in the US.

Advertising revenue Advertising revenue Television’s share of the As an integrated producer broadcaster, ITV generates revenues from advertising through advertising market linear television, sponsorship and online, and competes with commercial broadcasters and Television 25.5% other advertising media for its advertising revenues. Cash from these revenue streams is Press 13.1% then used to fund the creation of content in the UK and internationally. Radio 3.3% Cinema 1.4% In the UK, television advertising (including VOD, sponsorship and other television revenues) Outdoor 5.5% continues to hold a signifcant share of the overall advertising market with a 25.5% share Internet 51.2% in 2017 (2016: 27.5%). The decrease year-on-year can be attributed to the ongoing political and economic uncertainty in the UK with advertisers reducing spend on television as they Source: Advertising Association January 2018 try to manage margins. Historically, we have seen that television advertising loses share in an economic downturn, however it recovers quickly when the cycle reverses. Internet advertising (search, classifed and display) has grown its share to 51.2% in 2017 (2016: 46.6%),

making the UK one of the most developed markets for online advertising. Internet advertising information Additional has benefted in the current climate from the way it is sold when compared with television. Online advertising is normally sold as annual volume deals rather than share deals for television, which enables advertisers to reduce their television spend quickly. Print advertising continues to decline at 13.1% in 2017 (2016: 15.6%).

While online advertising has grown rapidly, there are concerns about what some online advertising delivers, especially when compared with television, that online has no trusted measurement system, the adverts may not be seen by a human in full or at all and the content around the advertising may not be appropriate for that brand. The ITV Hub delivers the key demographics and a high-quality, trusted and measured environment for online advertisers.

The UK television advertising market is extremely diffcult to measure as all broadcasters have different defnitions. We estimate ITV’s SOB (which is based on pure linear television advertising excluding VOD, sponsorship and self-promotion) to be 47.6% in 2017, up from 47.4% in 2016. This increase is because of ITV’s unique ability to deliver mass audiences across multiple regions and in key demographics.

13 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Chief Executive’s Report

I was very pleased to join ITV in January as Chief Executive. It is still early days, but I have already visited many parts of the business and met many very talented ITV people. I have visited our offces in London, Manchester and Leeds, a number of our newsrooms, production companies as well as two cornerstones of our schedule, Coronation Street and Emmerdale. I have been struck by the pride and passion ITV people have for what they do and the critical role ITV plays in society and the media ecology.

ITV’s operational performance was strong in 2017 in what clearly was a challenging year with continued economic and political uncertainty impacting the demand for television advertising. Share of viewing was up for the second year running – a frst ever for ITV; there was a signifcant increase in online viewing, up over 30% and with good revenue growth; and the Studios business also delivered good revenue growth both in total, and excluding acquisitions.

Carolyn McCall Chief Executive

14 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Chief Executive’s Report Strategic Report

The Board is proposing a full year dividend ITV has a strong consumer proposition of 7.8p, up 8% which reflects confdence in and fantastic content which drives mass the business and the outlook for 2018. This audiences and key demographics which are is in line with ITV’s ordinary dividend policy. so valuable to advertisers. It also has the The business remains highly cash generative potential to do more targeted advertising. but given that there is now a more normal Live television remains the preferred way ordinary dividend, fve consecutive special of watching content, even for younger

dividends, leverage around 1x and a strategic audiences. And it gives immediate scale, Governance refresh underway, the Board has decided reach and fame for advertisers that just not to pay a special dividend for 2017. cannot be achieved anywhere else. It also provides a safe, trusted and transparent ITV is in good shape but we recognise that environment in which to advertise and the media landscape continues to change generates the highest return on investment rapidly, with more content to watch and of any media. Recent research by Ebiquity, Six Nations Rugby Championships was more ways to watch it. The economics found that for every pound spent, TV successfully broadcast on ITV main channel are also changing. We are operating in generates over £4 of proft compared to for the second year in 2018. an increasingly competitive market – just over £2 for online video and less than traditional broadcasters are no longer our £1 for online display. only competitors for viewers, for advertising and for quality content. These relatively While online advertising continues to grow, ‘new’ competitors are also customers. advertisers are challenging its effectiveness We have kicked off a strategy refresh to and what it actually delivers – we are now address all of these areas and we have starting to see many more questions being identifed three major areas in this refresh – asked about unacceptable content,

content, advertising and direct to consumer. measurability and trust in online media. StatementsFinancial We will have a clear strategy, together with well-defned priorities, to establish what ITV needs to be in three and fve years’ time and what we need to do to face the challenges and exploit the opportunities ahead. Additional information Additional

Trauma was a three-part drama broadcast on ITV main channel in February 2018 and produced by Tall Story Pictures, part of ITV Studios UK.

15 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Chief Executive’s Report continued

The ITV Hub delivers a high quality, trusted Netflix and Amazon are important buyers and measured environment for advertisers. of our content – this year, Netflix will It also allows us to build direct to consumer become the biggest customer of Global relationships around our great content and Entertainment, our distribution business. programme brands – something we are And the focus isn’t just on drama, they also just at the start of – but already we have want unscripted content in the US. 75% of all 16 to 34 year olds registered. And through voting and competitions within And ITV Studios is an international our programmes, we had over 100 million production business of scale, with total interactions last year. revenues of over £1.5bn – 54% of which was generated outside the UK – and is Creating and owning quality content is active in 11 countries with a library of over a real advantage. The integrated producer 45,000 hours. We have strong relationships broadcaster model is also a beneft – we have through our global production and a great opportunity to make content famous distribution network and sell content on our channels in the UK before selling it to over 200 channels globally. round the world. Not only does our success on-screen and online depend on having fantastic content, but the global demand for high quality programming remains strong as broadcasters and platform owners look for brand defning content.

Emmerdale performed strongly in 2017, with an average of 6.5 million viewers and a 33% share, this was its highest share in four years.

16 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Chief Executive’s Report Strategic Report

Dancing on Ice returned to ITV in January 2018 after a four-year break for its tenth series. It has been recommissioned for an 11th series. Governance Financial StatementsFinancial

An Hour to Catch a Killer Trevor McDonald presented this one-off documentary as part of We have had a great start to 2018. While the economic outlook remains ITV’s Crime and Punishment season broadcast Viewing has been very strong with a uncertain, we expect ITV Family NAR to on the main channel in 2017. schedule including the return of Dancing be positive in the frst half with Q1 up 1% – On Ice, The Voice, Vera, Endeavour, Trauma, a continuation of the improvement we saw Six Nations rugby, record viewing for our towards the end of 2017. In 2018 we expect key daytime shows and the sixth episode online to show double digit revenue growth. of Coronation Street. Our family share of viewing, so far, is up 7% and total viewing We have kicked off our strategic refresh volumes are actually up too by 3% with and when we report to you at the interims online viewing up 22%. And we have a great we will be able to give you an update and schedule to come for the rest of the year some of the key headlines. In the meantime,

including the FIFA World Cup in June, we remain very focused on the business. information Additional Vanity Fair, Clean Break, White Dragon, There is a lot to do and the energy and Britain’s Got Talent and Little Big Shots. commitment of ITV people both creatively and commercially will help us deliver all ITV Studios’ has a great pipeline of new of this. and returning shows including Unforgotten, Vanity Fair, Survival of the Fittest and I’m We have a solid foundation to build on and A Celebrity…Get Me Out Of Here! for ITV, a strong balance sheet and healthy cash Poldark, Bodyguard and Shetland for BBC, flows gives ITV the flexibility to make the Living the Dream for Sky and internationally right strategic decisions for the long term Love Island, The Voice, The Chase, Big Star’s future of ITV in an increasingly competitive Little Star, Snowpiercer and Good Witch. environment whilst still delivering We have already secured over 60% of our sustainable returns to shareholders. expected revenue for 2018, about £100 million more than this time last year and expect to deliver good organic revenue Carolyn McCall growth in ITV Studios over the full year. Chief Executive

17 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Our Strategy We are focused on being an owner, producer, and Business distributor and broadcaster of content. We are currently undertaking a strategic Model refresh to ensure that ITV has a clear strategy and well-defned priorities to establish what ITV needs to be in three and fve years’ time.

Our strategy has Our sources of been to diversify and competitive advantage grow the business, reducing our reliance Delivering unrivalled commercial on UK advertising: audiences The scale of our channels and the signiﬁcant >60% investment we make in quality content give Our channels reach over ITV unique scale and reach across the key 60% of the UK population demographics on our main channel and more each week targeted audiences on our family of channels and the ITV Hub.

Broadcast & Online World-class content Building our free-to-air, At the core of ITV is our focus on creativity and online and pay business content, whether selling our unique content around £1bn the world or investing in third-party content to We invest over £1bn broadcast across multiple platforms. Internationally annually in content for we have built production and distribution scale our family of channels in key global creative markets through organic growth and selective acquisitions.

ITV Studios Growing an international Global distribution ITV has built relationships globally with major content and distribution networks, platform owners and local broadcasters, 45,000+ business and owns the rights to a diverse portfolio of shows, hours of television and particularly drama and entertainment, ﬁlm content for international distribution.

Our strategic assets

Our strategic assets underpin ITV’s competitive advantage

Creating and Our strong, trusted Our talented owning the rights brand and culture commercial and to quality content creative people

18 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Our strategy and business model Strategic Report

Our diversiﬁed Creating Governance revenue streams value for…

By developing and managing the rights to content, ITV is able to maximise the value of its programme brands across a range of revenue streams, making ITV a more balanced business and enabling it to drive Advertisers Through delivering unique value from different revenue models. scale and breadth of demographics and new innovative ways of engaging Advertising with consumers around quality Our family of channels and the ITV Hub drive significant advertising programme brands revenues from the ability to deliver both mass audiences and more targeted demographics to advertisers, this funds our investment in the programme budget. Financial StatementsFinancial Commercial partnerships We work with advertisers and advertising agencies to provide unique Audiences commercial partnerships and sponsorship opportunities that extend Through a varied, high-quality beyond pure spot advertising. programming schedule, which they can watch and engage with on a variety Pay & interactive of platforms We earn pay revenues from platforms in the UK primarily by licensing our HD channels and our online VOD services. In March 2017, we launched a joint venture with the BBC, BritBox US, a SVOD service offering the best of British television. The service launched in Canada in February 2018. We also monetise our consumer interaction with our biggest shows through competitions and voting. Going forward Broadcasters we need to ensure we are paid the appropriate value for our content and platform owners on all platforms. Through delivering quality programming that they can then monetise through Original production their own business models We produce original content commissions for broadcasters and platform owners internationally from our production bases in the UK, the US, information Additional the Netherlands, Germany, France, Italy, Australia and the Nordics. Distribution revenues We own the rights to a significant catalogue of programmes and formats that we sell and license to broadcasters and platform Shareholders owners internationally. The strong global demand for content Through a track record of creating provides a significant opportunity for us. shareholder value and delivering significant shareholder returns

11% Our people growth in total revenue derived from sources Through investing in and developing our talent and creating a culture that other than spot television advertising nurtures them to become both commercial and creative

19 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Corporate Building a responsible business that Responsibility benefts all stakeholders.

We want to continue to build a successful, creative, commercial and global Diversity at ITV organisation. We believe that conducting our business in a responsible way has a fundamental role in achieving this goal. Gender split – at 31 December 20171 2 Board of Directors As the largest commercial broadcaster in the UK and a growing international business, 6 3 we reach millions of people on a daily basis through our programmes and channels. 66.7% 33.3% We are woven into the fabric of society, both mirroring and shaping popular culture. As well as complying with our legislative and regulatory requirements, we believe in Senior management3 using the power of our content to make a difference in society for our viewers, our people and our communities. To help shape our corporate responsibility (CR) strategy, we engage 89 67 with our stakeholders to identify the issues most important to them and our business. 57.1% 42.9% Our approach All employees Our strategy focuses on three priorities: people, planet and partnerships. Each of our 3,024 3,366 priorities highlights the risks and opportunities that are most relevant to us, and we 47.3% 52.7% have made four commitments under each, that incorporate our main assets and business operations. These three pillars are underpinned by core responsible business practices such as good governance, business ethics, data protection, responsibility of content and performance management. ITV will be publishing its frst gender pay gap report in line with new reporting requirements. The report will be published separately and available online. Priority Leveraging Leveraging Responsible business How we work our reach our people day-to-day with others

1. Employee gender split is based on total headcount at 31 December 2017. People Inclusive Inclusive Inclusive culture Inclusive access 2. With the arrival of Carolyn McCall in January 2018, programming workforce To build awareness to programmes the Board of Directors gender split is now 60% male, To ensure our To ensure our and capacity and and services 40% female. programmes workforce reflects create a culture To work with 3. An employee who is a director of a subsidiary of portray the the diverse that attracts, our supply chain the Company or who has responsibility for planning, diversity of modern make-up of develops and to encourage society by the modern society. retains the best inclusivity directing or controlling the activities of the entity people on-screen talent possible and standards and or a strategically signifcant part of it. and the editorial enables everyone to make sure content. to be their best. our services are accessible.

Planet Greener Greener Greener footprint Greener partners programming workforce To minimise To work with To ensure our To build the our direct our value chain programmes awareness and environmental to encourage communicate capacity of our footprint of energy, environmentally responsible workforce to water and waste responsible environmental have a positive in our operations. standards and messaging through impact on the behaviours. the editorial environment. content, directly or indirectly.

Partnerships Empowering Empowering Empowering Empowering charities and our workforce our viewers communities causes To empower our To use our To inspire and To use our mass workforce to give programmes at engage our local audience reach back, through the heart of popular communities to and influence to time and skills, culture to raise make a positive raise awareness to support local awareness of difference. or donations communities pressing social for national and and causes. topics and inspire international change. causes.

Responsible business To embed responsible business practices at the heart of everything we do, including good governance, business ethics and stakeholder engagement, and to strive for continual improvements.

20 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Corporate responsibility Strategic Report

People Planet Partnerships We strive to ensure diversity in our Our aim is to increase awareness of We believe partnerships mean on-screen programming and in our environmental sustainability through collaborating with others to make workforce, ensuring that we’re relevant our programmes while minimising the a positive contribution to society.

and accessible to all. Our people are the environmental impact of our operations. Every week, our programmes reach over Governance driving force of ITV. We run our business Through our reach and value chain, 60% of the UK population. As a producer in a way that nurtures an engaged we have the chance to create long-term broadcaster, our biggest impact is and inclusive workforce. This means change by bringing environmental the influence our content has on the attracting people from all backgrounds awareness and sustainable behaviour thoughts and actions of our viewers. to work at and with ITV, enabling into the heart of popular culture. We recognise the opportunity this everyone to be their best at work. presents to reflect modern society, shape conversations and encourage action on the things that matter. Our on-screen social cause strategy is focused on health and wellbeing, to inspire, engage and empower people to make a difference to their own and other people’s health. Financial StatementsFinancial

ITV’s Employee Network Groups Low emission vehicles 1 million minutes Active networks like ITV Ambassadors, Improving the environmental impact of In the UK more than one million older ITV Pride and The Women’s Network help our operations is an important focus at people are chronically lonely, and connect colleagues and help identify ITV. In 2017, our ITV Daytime team, who Christmas is one of the loneliest times. ways to make ITV an even more inclusive look after Good Morning Britain, Lorraine, That’s why, in December 2017, Good place to work. In 2017 we launched two This Morning and Loose Women, bought Morning Britain repeated it’s award- new networks; ITV Balance for working a range of Plug-in Hybrid Electric vehicles winning campaign, 1 Million Minutes, parents, grandparents and carers, and ITV to replace older diesel models. These asking viewers to pledge just 30 minutes

Embrace, the Black, Asian and Minority vehicles each drive about 40,000 miles of their time to support an older person. information Additional Ethnic network. a year to broadcast footage from outside Partnering with a number of charities, the studio. Not only do the new vehicles the campaign was promoted on-air in save fuel and money, they are technically the UK and abroad, including Austria, more advanced, and so transmit better Australia, Canada and South Africa. quality footage. The response from viewers was amazing, with over 22.7 million minutes pledged during the month of the campaign, which makes a real difference to so many lives.

Further information More information on our responsibility initiatives can be found online.

itvplc.com/responsibility

21 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Operating and Performance Review

ITV has delivered a good performance in 2017 as we continue to rebalance and strengthen the business creatively and commercially.

Victoria averaged 6.4 million viewers and a 25% share for its second series. It has been recommissioned for a third series in the UK and has been sold to over 150 countries.

22 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Operating and Performance Review Strategic Report

ITV has delivered a strong operational Statutory proft before tax declined by Key highlights performance in a challenging year 10% to £500 million (2016: £553 million) with ongoing economic and political and statutory EPS declined by 9% to uncertainty in the UK. ITV took action 10.2p primarily due to the decline in earnings NAR revenue early to reduce overhead costs but the and higher amortisation and impairment uncertainty has undoubtedly had an of acquired assets, which is explained in £1,591m impact on the demand for television more detail in the Finance Review. (2016: £1,672m) advertising and therefore as expected Governance ITV’s fnancial performance. We have a strong balance sheet and Total non-NAR revenue the business continues to be highly cash We set ourselves challenging objectives to generative. Our proft to cash conversion £2,066m grow our on-screen and online viewing and remains high at 91% and we ended the (2016: £1,855m) deliver good growth in non-NAR. And ITV year with net debt of £912 million (2016: has delivered on these as we have continued £637 million) after the effect of acquisitions Group external revenue to rebalance and strengthen the business and investments of £95 million, dividend creatively and commercially. On-screen, our payments of £494 million and pension £3,132m share of viewing was up for the second year, contributions of £80 million. (2016: £3,064m) up 2%, the ITV Hub continues to deliver strong viewing, up 39%, Online, Pay & The Board has proposed an ordinary Adjusted EBITA Interactive revenue grew 7% and total dividend of 7.8p, an increase of 8%, ITV Studios revenue grew 13% including reflecting our confdence in the underlying £842m currency beneft. We have a strong creative strength of the business and the outlook (2016: £885m) pipeline of high-quality programmes, for 2018. This is in line with the Board’s particularly drama and entertainment, commitment to a long-term sustainable Adjusted EPS

and we continue to perform well across dividend policy and for ordinary dividends to StatementsFinancial the key genres that return and travel. grow broadly in line with earnings, targeting 16.0p dividend cover of around 2x adjusted (2016: 17.0p) We measure performance through a earnings per share over the medium term. Statutory EPS range of metrics, particularly through our alternative performance measures and KPIs We remain focused on being a creator, as well as our statutory results, all of which owner, distributor and broadcaster of 10.2p are set out later in the report. content and in 2017 we continued to deliver (2016: 11.2p) on our strategy to diversify the business and Net debt External revenue was up 2% to £3,132 million grow new revenue streams, further reducing (2016: £3,064 million), with 11% growth in our reliance on UK spot advertising and non-NAR more than offsetting the decline making ITV a stronger and more resilient £912m in NAR, a clear indication that our strategy business. We continue to build our free-to- (2016: £637m) of rebalancing the business is working. 56% air, online and pay businesses through Dividend per share (ordinary) of total revenues came from sources other Broadcast & Online and are further growing than spot television advertising (non-NAR). our international content and distribution 7.8p business, ITV Studios. We are currently

Adjusted EBITA declined 5% to £842 million undertaking a strategic refresh to ensure information Additional (2016: 7.2p) (2016: £885 million) and adjusted EPS we have a clear strategy and well-defned declined 6% to 16.0p (2016: 17.0p) impacted priorities which reflect what ITV needs to by a 5% decline in NAR and the ongoing be in three and fve years’ time. investment across the business and the fact that the prior year includes the full £37 million revenue and proft beneft of the four year licence deal for The Voice of China. We did however beneft from the delivery of £29 million of overhead cost savings and £25 million lower schedule costs. Broadcast & Online adjusted EBITA declined 7% and ITV Studios adjusted EBITA was flat.

The Voice Kids launched in the UK in 2017. It has been recommissioned for a second series. The format has been sold to 35 countries.

23 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Operating and Performance Review continued

Broadcast & Online street was weak while supermarkets Viewing The media environment in which we increased their spend and some of the On-screen we performed strongly with operate is constantly changing. Our Broadcast FMCGs returned to spend in the second half viewing up for the second consecutive year. & Online business is robust and evolving of 2017. Entertainment & Leisure was down, We increased our spend on entertainment to take advantage of the signifcant impacted by tough comparatives from the but sports costs were lower as a result of opportunities for growth. European Football Championship in 2016. there being no major sports tournament Cars and Telecommunications increased in 2017. ITV through its free-to-air channels offers their spend around product launches and unique audience scale and reach as well digital brands continue to spend heavily ITV Family SOV grew 2% with a strong as the key demographics demanded by on television to build brand awareness. performance across the schedule. This level advertisers. The ITV Hub, the digital home of growth is the second biggest in ITV’s for all our channels and content, is growing Total costs were down as the cost savings recent history and never before has ITV rapidly, driven by viewers’ appetite for catch and lower schedule costs offset the increased delivered two years of consecutive growth. up and VOD and the quality of our content. investment on the ITV Hub, ITV Hub+ and ITV Daytime shows including Good Morning We continue to explore and trial new ways, Box Offce (our pay-per-view channel used Britain, This Morning and The Chase grew both free and pay, to distribute content to to show boxing matches). their audiences and Coronation Street broadcasters and platform owners as well and Emmerdale continue to perform well as directly to consumers. Overall Broadcast & Online adjusted EBITA and are now the UK’s two largest soaps. declined 7% to £599 million (2016: £642 We launched the sixth weekly episode Financial performance million) which has led to a one percentage of Coronation Street in September, which Broadcast & Online total revenue was point reduction in the adjusted EBITA margin has further strengthened its performance. down 3% in the year at £2,075 million (2016: to 29% (2016: 30%). We successfully aired a range of new dramas £2,132 million). We delivered 7% growth in Online, Pay & Interactive, driven by double- 2017 2016 Change Change Twelve months to 31 December – on a continuing basis £m £m £m % digit growth in online advertising, but this NAR 1,591 1,672 (81) (5) was offset by the 5% decline in NAR. Including sponsorship, VOD and self-promotion, Online, Pay & Interactive revenue 248 231 17 7 ITV total advertising was down 3%. SDN external revenue 70 67 3 4 Other commercial income 166 162 4 2 Advertising categories such as Retail, Finance Broadcast & Online non‑NAR revenue 484 460 24 5 and Food continued to see declines due Total Broadcast & Online revenue 2,075 2,132 (57) (3) to the uncertain economic outlook, along Total schedule costs (1,025) (1,050) 25 (2) with the weaker pound causing inflationary pressures, leading advertisers to reduce Other costs (451) (440) (11) 3 spend in order to maintain margins. Within Total Broadcast & Online adjusted EBITA 599 642 (43) (7) Retail, spending has been mixed: the high Adjusted EBITA margin 29% 30%

Good Karma Hospital was the third most watched drama on ITV in 2017, averaging 6.9 million viewers and a 26% share. It has been recommissioned for a second series in 2018.

24 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Operating and Performance Review Strategic Report Governance

Diana, Our Mother: Her Life & Legacy was ITV’s highest rated factual in over 14 years. It had 9.4 million viewers and a 36% share. Financial StatementsFinancial

Unforgotten returned to ITV for its second series. It is produced by Mainstreet Pictures, part of ITV Studios UK. It averaged 6.1 million viewers and has been recommissioned for a third series in 2018. including Liar, Good Karma Hospital, and have seen a signifcant increase in Long-form video requests were up 34% Fearless, Bancroft and Little Boy Blue and our target demographics on ITV2 and ITV4. and online viewing consumption, which new entertainment shows, The Voice, The Our 16–34s share of commercial impacts measures how long viewers are spending Voice Kids, The Keith and Paddy Picture (SOCI) on ITV2 was up 17% helped by the online, was up 39%. The ITV Hub has now Show and Five Gold Rings, as well as new phenomenal success of Love Island as well been the fastest-growing public service sitcom Bad Move. We continued to drive as Celebrity Juice, Family Guy and American broadcaster online service for the last three signifcant audiences with our returning Dad. Male SOCI on ITV4 was up 12% helped years driven by the good user experience

brands such as Broadchurch – which was by ITV’s horse racing coverage, The French and great content and now has 21 million information Additional the most watched drama in the year – Vera, Open and the Isle of Man TT Races. ITV3’s registered users. Unforgotten, Victoria, Cold Feet, Ant & Dec’s viewing performance improved in the year Saturday Night Takeaway, I’m A Celebrity… due to the strong performance of dramas The ITV Hub helps ITV reach valuable younger Get Me Out Of Here! and Britain’s Got Talent. such as Midsomer Murders, Lewis and audiences – 75% of the UK’s 16–24 year olds Our news programming continues to Endeavour. ABC1 adults SOCI on ITV3 was are registered together with 65% of the UK’s perform well with highlights including our up 1% making it the most popular digital 16–34 year olds. Younger viewers increasingly General Election coverage, as does our channel for this demographic. use the ITV Hub for simulcast viewing, as sporting schedule with the Six Nations well as catch up, with programmes such as Rugby Championships and the launch of ITV Hub Love Island delivering record viewing with horse racing on ITV. Some of our schedule The ITV Hub, which is now available on 1.3 million simulcast requests for the fnal. did not perform as well as we had hoped, 29 platforms, continues to grow rapidly, for example The Nightly Show, Fearless and driven by viewing on mobile and connected We are using the insight we gain from our Bigheads, so will not return in 2018. televisions. The ITV Hub is now pre-installed registered users to develop more targeted on around 90% of all connected televisions advertising solutions and to increasingly drive We continue to target the hard to reach sold in the UK and launched on Apple TV, viewing through personalisation. In the year, demographics demanded by advertisers – Apple’s new TV app and Microsoft XBox we launched personalised ITV Hub home particularly young and male audiences – in 2018. pages for our audiences and have introduced through our digital channels and online, data-driven recommendations and mobile notifcations to registered users.

25 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Operating and Performance Review continued

ITV commercial audiences Strong advertising proposition As a result, ITV’s ‘Other commercial income’ While political and economic uncertainty increased by 2%, with new sponsorship has led advertisers to reduce their current around ITV horse racing and The Voice, 99 99 99 98 100 96 96 95 95 93 spend, television remains one of the offset by a reduction in third-party airtime most effcient and effective mediums for sales commission and revenue primarily advertisers to achieve mass simultaneous from UTV following ITV’s acquisition in reach. As viewing and advertising becomes February 2016 and successful integration

2017 more fragmented, the scale of advertising of the business. 96% that television, and particularly ITV, delivers 99% becomes increasingly valuable. Digital advertising is growing rapidly and 13 14 15 16 17 we have seen double-digit growth in our Over 3 million ITV’s unique ability to deliver mass VOD advertising revenues on the ITV Hub, Over 5 million audiences, as well as more targeted which delivers more targeted demographics demographics across the family of channels, and a high-quality, trusted and measured has enabled us to again increase our share environment for online advertisers. of the television advertising market (SOB) to 47.6% from 47.4%. ITV delivered 99% of all In 2017, ITV announced a trial for addressable commercial audiences over fve million and advertising with Sorenson on connected 96% of all commercial audiences over three Smart televisions. We have also launched million. SOV provides an overall measure a trial of a self-service portal so that any of viewing performance, but because business, however small, can easily access advertisers are buying scale and breadth advertising on ITV. of audience, SOV is not necessarily a direct indicator of advertising performance. Remain responsive to a changing media environment ITV aims to maximise further the value of Linear television viewing remains resilient its airtime and drive new revenue streams despite signifcant changes in the availability through sponsorship, interactivity and and delivery of content. On average viewers branded extensions. ITV utilises the core watched 203 minutes of television a day in assets of its strong brand and reputation, 2017. This is lower than 212 minutes in 2016 unique commercial relationships and quality and partly is due to there being no major production capability to deliver a wide sports tournament in 2017. The majority variety of marketing solutions. of viewing remains live at over 75% as Horse Racing moved to ITV from Channel 4 television continues to have the power in 2017 with races broadcast across ITV main to bring audiences together. VOD viewing channel and ITV4 during the year. continues to grow rapidly while PVR (recorded) viewing has remained relatively constant over the last few years at around 13%. Younger viewers are watching less linear television than they used to, but through delivering great content such as The Voice, Britain’s Got Talent, Saturday Night Takeaway and Love Island, television reaches around 90% of young people each week and remains their dominant choice of media.

Developing ITV’s digital broadcast assets We are further developing our social media assets across our international portfolio of programmes as live television continues to demonstrate a growing relevance as viewers increasingly connect and engage through social media. We now have over 160 YouTube branded channels and had around 20 owned and operated programme apps across the year which, together with our quality content, is driving signifcant growth in viewer engagement. Our programmes generated over 100 million interactions in 2017.

26 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Operating and Performance Review Strategic Report

We are continuing to develop the ITV Hub+, our ad-free subscription version of the ITV Hub, which while relatively small, tripled its subscribers in the year. We have extended the service across all platforms so subscribers can now watch on mobile, PC and connected televisions and launched it on Amazon. Governance Over the last few years we have also established a number of smaller pay propositions. We own a majority stake in Cirkus, a best of British SVOD service in the Nordics and Germany. We also have a general entertainment channel, ITV Choice, for emerging markets available in over 100 countries.

We are trialling ITV Box Offce, a direct to consumer pay per view offering which currently focuses on boxing and we have a number of live events based around our key brands, which build relationships directly with our viewers. For example, we have the Emmerdale Studios Experience, which

showcases the process of creating an StatementsFinancial episode of the soap, and This Morning Live, a shopping and lifestyle festival. Saturday Night Takeaway returned for Building our pay offering in the UK its 14th series in 2017 and averaged 7.9 million and internationally ITV also continues to license its channels viewers and a 37% share across the series returns As a creator, owner and distributor of sought and content across multiple platforms, for a 15th series in 2018. after content, ITV is well positioned to take including our HD digital channels and advantage of the opportunities that arise catch-up VOD on Sky and Virgin Media set from the changes we are seeing in digital top boxes and all our live channels and catch media and consumer behaviour. We must up VOD across their connected platforms. ensure that however our content is viewed We announced that ITV Encore will close and on whatever platform it is viewed on, as an exclusive Sky channel in 2018 which we are paid the appropriate value for it. allows ITV to distribute box sets more widely across multiple platforms. The closure As we look to build our pay offerings, we are of Encore will impact ITV’s pay revenues developing SVOD services to target direct in 2018. to consumer pay revenues. In March 2017,

we launched our US joint venture with the SDN information Additional BBC, BritBox, (with AMC Networks taking SDN generates revenue by licensing capacity a minority share), an ad-free SVOD service to broadcast channels, radio stations and offering the most comprehensive collection data providers on digital terrestrial of British content in the US. A version of the television or Freeview. It holds a licence service also launched in Canada in February with capacity for 16 broadcast channels, 2018 and we now have over 250,000 including ITV services and third-party subscribers in total. In 2018, we will explore channels. SDN external revenue grew opportunities for BritBox on other platforms, 4% driven by the full year impact of the include original commissions, and look to 16th stream, which was launched in 2016. roll it out further internationally.

Our pay offerings

27 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Operating and Performance Review continued

ITV Studios 2017 2016 Change Change Twelve months to 31 December £m £m £m % Growing an international content business has been central to ITV’s strategy as Studios UK 692 626 66 11 an integrated producer broadcaster. ITV America 313 235 78 33 As ITV creates and owns more content, Studios RoW 390 355 35 10 our channels in the UK provide a platform Global Entertainment 187 179 8 4 to showcase our programmes before Total Studios revenue 1,582 1,395 187 13 distributing them across multiple platforms Total Studios costs (1,339) (1,152) (187) 16 in the UK and internationally. Total Studios adjusted EBITA* 243 243 – – Growing demand for content Studios adjusted EBITA margin 15% 17% The strong global demand for content from * Includes the beneft of production tax credits. broadcasters and platform owners provides signifcant opportunity for ITV Studios. 2017 2016 Change Change We estimate that the global content Twelve months to 31 December £m £m £m % market is growing at around 5% per annum, Sales from ITV Studios to Broadcast & Online 523 463 60 13 with some genres, such as drama, growing External revenue 1,059 932 127 14 more rapidly. To capitalise on this growth, Total Studios revenue 1,582 1,395 187 13 we continue to develop, own and manage rights in genres that return and travel internationally, namely drama, entertainment Total organic revenue, which excludes In 2017, the foreign currency beneft was and factual entertainment, and we have our current year acquisitions and foreign £43 million on revenue and £7 million on built a healthy pipeline of new and exchange, was up 7% and acquisitions adjusted EBITA. returning programmes. continue to deliver with a 13% return Adjusted EBITA was flat year-on year at on investment in 2017. £243 million. There was good underlying Financial performance proft growth but adjusted EBITA was ITV Studios is now a global producer Reflecting our growth in key production impacted by our ongoing investment in of scale and total revenues grew 13% markets in Europe and the US, 54% of ITV US drama and the fact that the prior year to £1,582 million (2016: £1,395 million) total revenue was generated outside the includes the full £37 million beneft of the including currency beneft, with growth UK (2016: 50%). ITV is the number one four year licence deal for The Voice of China. across the business as we continue to commercial producer in the UK and a leading Adjusted EBITA margin declined by two build our capability in key creative markets. producer in Europe and the US. As our percentage points to 15%, impacted by Studios business grows internationally, revenue mix on new and returning shows. foreign currency movements have an increasing impact on our results.

Profilage is a French crime drama produced by Tetra Media Studio, which was acquired by ITV Studios in 2017. Proflage is in its eighth season and is broadcast on TF1.

28 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Operating and Performance Review Strategic Report

Big Star’s Little Star is a UK primetime entertainment format produced by ITV Studios. The format has been sold to 14 countries. Governance Financial StatementsFinancial Building scale in key creative markets of a majority stake in World Productions, ITV Studios has three production divisions the producer of Line of Duty, and our Key new and returning – Studios UK, ITV America and Studios Rest entertainment business with an investment scripted programmes of World (RoW). Across these divisions, ITV in start-up Koska in October. produced over 8,400 hours of programming, compared to 7,800 in 2016 and secured 240 ITV America total revenue grew 33% to recommissions and 239 new commissions £313 million (2016: £235 million) including in the year. foreign exchange. We delivered fve drama commissions – the third series of the The US and the UK are the dominant Good Witch for Hallmark which has been creative markets, with the US the largest commissioned for a fourth series, Sun Records exporter of scripted content and the UK the for CMT, Somewhere Between for ABC and world leader in exported formats. Over the two pilots for TNT, Highland and Snowpiecer, last few years we have built scale in these which has been commissioned for a ten-part key markets, both organically and through series. We have also delivered a high volume acquisitions, and we now have a signifcant of programmes from our entertainment

portfolio of successful series and formats portfolio including two series of Hell’s information Additional that travel. Kitchen, Pawn Stars, Alone, Forged in Fire and First 48 and new commissions including The UK performed well with total revenue Sideserf, World Hip Hop Star and Big Star’s up 11% at £692 million (2016: £626 million). Little Star. We continue to grow our sales to ITV, which were up 13% with deliveries including The Studios RoW has production bases in Voice, The Voice Kids, Love Island, Next of Australia, Germany, France, the Netherlands, Kin, Bancroft, Fearless, Unforgotten, Little the Nordics and Italy where we produce Boy Blue and an extra episode of Coronation original content as well as local versions of Street. We have again grown ITV Studios ITV Studios UK and Talpa formats. Revenue UK share of original content on ITV main grew 10% to £390 million (2016: £355 million) channel from 63% to 66%. Our off-ITV including foreign exchange, driven particularly revenues grew 10% with deliveries including by good growth in Australia, France and The City And The City, Shetland, Moorside the Nordics. Across the territories, our and Motherland for BBC, Back for Channel 4, entertainment and format deliveries Blind Date for Channel 5 and Living the included The Voice in Australia and Dream for Sky. We strengthened our UK Germany, The Chase in Australia and drama business with the acquisition in April Germany, and Love Island in Germany.

29 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Operating and Performance Review continued

Talpa continues to develop its formats We have further strengthened our including The Voice Senior, A Year To international business with a number Remember, I Love My Country, A Whole of other small investments. In April, New Beginning and Around The World With we acquired a 45% stake in Blumhouse 80 Year Olds. Our international scale now Television, established by Jason Blum, enables ITV to make The Voice and these the renowned flm and television producer, other formats in all our international which fnances and produces original production territories and therefore earn the scripted and unscripted ‘dark’ genre Marriage Boot Camp is a US reality production revenue as well as the format fee. programming for global audiences including entertainment format produced by ThinkFactory The Jinx and Cold Case Files. In May we Media which is part of ITV America, and is now in Some of our content will not be entered into a joint venture with the US its 11th season. recommissioned in 2018 as they have talent agent and production company, not performed as expected, for example Circle of Confusion, and in June we acquired The Loch and Sun Records. Elk Production, a Swedish entertainment production company. We are making real progress in building a European scripted business. In February Investing in content with 2017, ITV acquired a majority stake in Tetra international appeal Media Studio, a French scripted production We have continued to expand our portfolio company, and in October ITV acquired of successful formats and series that return a majority stake in Cattleya, the Italian and can be distributed internationally. scripted production company behind Gomorrah and Suburra. We also took a stake With the acquisition of Talpa Media in 2015, in a Danish scripted producer Apple Tree we have signifcantly strengthened our Productions in December. These, along with global capability in entertainment formats. our existing European drama businesses, Across the business, we have grown a solid will enable us to beneft from the increasing portfolio of high volume and high margin demand for locally produced content with formats that travel internationally and that global appeal. we produce locally. For example, during 2017 Poldark is produced by Mammoth Screen we produced The Voice in fve countries (part of ITV Studios UK) for the BBC. It has been and The Voice Kids and Four Weddings in recommissioned for a fourth season in 2018 and four countries. has been sold to over 150 countries. Demand for drama is growing strongly as standout original content becomes brand defning for both broadcasters and OTT players. To capitalise on this, we are investing in our global scripted business, particularly in the US, to build on the success of our UK drama business. We are strengthening our development and creative capabilities internally and have invested in a number of development relationships. In 2017, we increased our investment in drama across the business, investing £243 million (2016: £160 million).

We fnance our large-scale scripted projects through our strong underlying cash flows or through co-productions and partnerships with broadcasters and OTT platforms. The production costs are partly funded by the initial sale of the series to a broadcaster, while the defcit (the difference between the cost and what the broadcaster pays), is recovered through distribution revenue from selling the fnished product globally to other broadcasters and platforms.

30 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Operating and Performance Review Strategic Report

We balance our fnancial exposure through Entertainment’s pipeline of new projects is building a portfolio of programmes across strengthening with projects such as Vanity genres and across their content life cycle, Fair, The City And The City and World On Fire with successful international dramas expected for 2018. offsetting the risk that we will not recover the full defcit on every show. Our content continues to sell well internationally to broadcasters and OTT

We are seeing increasing demand from OTT platforms and in particular, our scripted Governance platforms for original long-form content programmes with titles including Victoria, and secondary rights. As well as distributing Poldark, Vera, Good Witch, The Murdoch library content to OTT platforms through Mysteries, Schitts Creek, The Loch, Fearless Global Entertainment, we are also and Harlots. Over 15 of our scripted producing and jointly commissioning programmes have been sold to more than a number of scripted and unscripted 100 countries Our entertainment and 5 Gold Rings is a new entertainment format programmes with OTT platforms including factual entertainment formats are highly co-produced by Talpa Media and Possessed (part Vanity Fair with Amazon, Robozuna, and demanded and include programmes such of ITV Studios UK). It was broadcast in the UK in Queer Eye for the Straight Guy for Netflix, as The Voice, Love Island, The Chase, Big 2017 and will return for a second series in 2018. Harlots for Hulu and we are in development Star’s Little Star, This Time Next Year, Five The format was sold to four countries in 2017. with a number of shows for Facebook. Gold Rings, Come Dine With Me and Four Weddings. In 2017, we sold 62 different Expanding our global formats internationally, 17 of which are distribution business being produced by ourselves or other Global Entertainment, the distribution producers in three or more countries arm within ITV Studios, delivered revenue including Love Island, Keeping the Nation

growth of 4% to £187 million (2016: £179 Alive and Hell’s Kitchen. We currently have StatementsFinancial million) as we continue to drive value from over 250 programme supply agreements our investment in creating and owning the in place with online platforms including rights to quality content with international Netflix, Amazon and Hulu. appeal. As well as funding and creating new content from ITV Studios, we also invest in third-party producers and their content from all over the world. Global Additional information Additional

Love Island is a UK reality entertainment format, the third series of which was broadcast on ITV2 in 2017. The format has been sold to six countries including Australia and Germany.

31 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Operating and Performance Review continued

Productivity

Pictured: Behind the scenes on Coronation Street

We consistently seek to drive People productivity across the Group by During the year, we continued to invest in our people, rolling out a new conversation investing in our people, new broadcast based performance management process and continuing to provide general and and production technology as well as more specifc training for staff across the business. up to date offce facilities. We use employee engagement scores as a key measure. We will undertake our next By investing in these areas, we aim to engagement survey in 2018. Our 2016 survey showed that ITV continues to have high transmit our content and advertisements levels of engagement (90%), (see the KPIs section on pages 36 to 39 for details on how more effciently, increase our production this is measured). We always seek to recruit and promote internally where possible with output and the rights we own and 34% of vacancies in 2017 flled from within ITV. improve our viewer experience. Broadcast and content technology One of the key initiatives in our Broadcast business is to improve our processes around our content supply chain, which includes how we store our content and how our content is managed and ultimately played out via our transmission centres. We have sought to reduce the time taken from live transmission to content being available for catch up on the ITV Hub. We are in the process of upgrading our advertising sales system and during the year we began investigating how robotic process automation may beneft ITV in the future.

Production facilities September 2017 saw the launch of a sixth weekly episode of Coronation Street, which required a signifcant step up in productivity and investment in expanding the production site with new streets, as well as new equipment, sound stages and a state of the art production control room. We refresh our regional news production facilities on a continuous rotation basis and this year we built new facilities for our UTV licence in Northern Ireland. During 2018, we are relocating our Daytime studios to a new state of the art facility as part of our London property move.

We also seek to use established and emerging technology to drive productivity, where it makes commercial sense to do so. In our Studios business, we have recently implemented a new process and technology for script editing and management. We commenced roll-out of a bespoke artist payment system, which has reduced duplication across the business and uses less paper. Our regional news teams are taking advantage of new production technologies and increasingly use mobile kits that enable reporters to shoot more effciently and transmit high-quality live reports.

32 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Operating and Performance Review Strategic Report Governance Financial StatementsFinancial Additional information Additional

Pictured: Broadchurch

33 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Alternative Performance Measures

The Annual Report includes both statutory and adjusted measures, the latter of which, in management’s view, reflect the underlying performance of the business and provide a more meaningful comparison of how the business is managed and measured on a day-to-day basis. Our APMs and KPIs are aligned to our strategy and business segments and together are used to measure the performance of our business and form the basis of the performance measures for remuneration. Adjusted results exclude certain items because, if included, these items could distort the understanding of our performance for the year and the comparability between periods.

Key adjustments for adjusted EBITA, profit before tax and EPS Adjusted EBITA is calculated by adding back exceptional items and high end production tax credits to EBITA. Further adjustments, which include amortisation and impairment of assets and net fnancing costs, are made to remove their effect from adjusted proft before tax and EPS. The tax effects of all these adjustments are reflected in the adjusted tax charge. These adjustments are detailed below.

Production The ability to access tax credits, which are rebates based on production spend, is fundamental to our Studios business tax credits when assessing the viability of investment in green-lighting decisions, especially with regards to high-end drama. ITV reports tax credits generated in the US and other countries (e.g. Ireland, Hungary, Canada and South Africa) within cost of sales, whereas in the UK and Italy tax credits for high-end drama must be classifed as a corporation tax item. However, in our view all tax credits relate directly to the production of programmes. Therefore, to align treatment, regardless of production location, and to reflect the way the business is managed and measured on a day-to-day basis, these are recognised in adjusted EBITA. Our cash measures including proft to cash conversion and free cash flow are also adjusted for the impact of production tax credits. Further detail on this is included below.

Exceptional These include acquisition-related costs, reorganisation and restructuring costs, property costs and non-routine legal items costs. These items are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis. They are typically gains or losses arising from events that are not considered part of the core operations of the business or are considered to be one-off in nature, though they may cross several accounting periods. We also adjust for the tax effect of these items. Note 2.2 includes further detail on exceptional items.

Acquisition-related costs We structure our acquisitions with earnouts or put and call options, to allow part of the consideration to be based on the future performance of the business as well as to lock in and incentivise creative talent. Where consideration paid or contingent consideration payable in the future is employment-linked, it is treated as an expense (under accounting rules) and therefore part of our statutory results. However, we exclude all consideration of this type from adjusted EBITA, adjusted proft after tax and adjusted EPS as, in our view, these items are part of the capital transaction and do not form part of the Group’s core operations. The Finance Review explains this further. Acquisition-related costs, including legal and advisory fees on completed deals or signifcant deals that do not complete, are also treated as an expense (under accounting rules) and therefore on a statutory basis form part of our reported results. In our view, these items also form part of the capital transaction and are excluded from our adjusted measures.

Restructuring and reorganisation costs These arise from Group-wide initiatives to reduce the ongoing cost base and improve effciency in the business. We consider each project individually to determine whether its size and nature warrant separate disclosure. Where there has been a material change in the organisational structure of a business area or a material Group-wide initiative, these costs are highlighted and are excluded from our adjusted measures.

Property costs In 2018, ITV will relocate to various properties on a temporary basis while its headquarters are redeveloped. The ft-out costs will be capitalised but the incremental one-off property project costs, including move costs, rental payments for these properties and accelerated depreciation for assets made redundant due to the move, will be ring-fenced as they relate to a one-off property project and are therefore excluded from our adjusted measures. As a ring-fenced cost, rental payments will continue to be excluded from our adjusted measures until we move back, which is expected in 2023.

Amortisation Amortisation and impairment of assets acquired through business combinations and investments are not included and within adjusted earnings. As these costs are acquisition-related, and in line with our treatment of other acquisition- impairment related costs, we consider them to be capital in nature and they do not reflect the underlying trading performance of the Group. Amortisation of software licences and development is included within our adjusted results as management consider these assets to be core to supporting the operations of the business.

Net financing Net fnancing costs are adjusted to reflect the underlying cash cost of interest for the business, providing a more costs meaningful comparison of how the business is managed and funded on a day-to-day basis. The adjustments made remove the impact of mark-to-market on swaps and foreign exchange, imputed pension interest and other fnancial gains and losses, which do not reflect the relevant interest cash cost to the business and are not yet realised balances. A full reconciliation between our adjusted and statutory results is provided on the following page.

34 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Alternative Performance Measures Strategic Report

Reconciliation between statutory and adjusted results

2017 2017 2017 2016 2016 2016 Twelve months to Statutory Adjustments Adjusted Statutory Adjustments Adjusted 31 December – on a continuing basis £m £m £m £m £m £m EBITA1 810 32 842 857 28 885 Exceptional items (operating)2 (153) 153 – (164) 164 – Amortisation and impairment3 (102) 97 (5) (89) 77 (12) Operating proft 555 282 837 604 269 873 Net fnancing costs4 (50) 17 (33) (51) 25 (26) Share of losses on JVs and Associates (4) – (4) – – –

Gain on sale of non-current assets and subsidiaries Governance (non-operating exceptional items) (1) 1 – – – – Proft before tax 500 300 800 553 294 847 Tax 5 (87) (67) (154) (100) (60) (160) Proft after tax 413 233 646 453 234 687 Non-controlling interests (4) – (4) (4) – (4) Loss from discontinuing operations (net of tax) – – – (1) 1 – Earnings 409 233 642 448 235 683 Shares (million), weighted average 4,006 – 4,006 4,010 – 4,010 EPS (p) 10.2p 16.0p 11.2p 17.0p Diluted EPS (p) 10.2p 16.0p 11.1p 17.0p 1. £32 million adjustment relates to production tax credits which we consider to be a contribution to production costs and working capital in nature rather than a corporate tax item. 2. Exceptional items largely relate to acquisition costs, primarily employment linked consideration, as well as restructuring and property costs and an insured trade receivable provision in relation to The Voice of China. Further detail is included on page 42. 3. £97 million adjustment relates to amortisation and impairment of assets acquired through business combinations and investments. We include only amortisation on purchased intangibles such as software within adjusted PBT.

4. £17 million adjustment is primarily for non-cash interest cost. This provides a more meaningful comparison of how the business is managed and funded on a day-to-day basis. StatementsFinancial 5. Tax adjustments are the tax effects of the adjustments made to reconcile PBT and adjusted PBT. A full reconciliation is included on page 43.

Other Alternative Performance Measures Net pension defcit Total revenue This is our defned beneft pension defcit under IAS 19 adjusted for As an integrated producer broadcaster, we look at the total other pension assets, mainly gilts, over which the pension scheme revenue generated in the business which includes internal revenue, holds a charge, which are held by the Group as security for future which is the sale of ITV Studios programmes to Broadcast & Online. unfunded pension payments of four former Granada executives. Our broadcast channels are a signifcant customer for ITV Studios A full reconciliation is included within note 3.7. and selling programmes to Broadcast & Online is an important part Proft to cash conversion of our strategy as it ensures we own all the rights to the content. This is our measure of our effectiveness of cash generation used for A reconciliation between external revenue and total revenue is working capital management. It is calculated as our adjusted cash provided below. flow as a proportion of adjusted EBITA. Adjusted cash flow, which

2017 2016 reflects the cash generation of our underlying business, is calculated Twelve months to 31 December £m £m on our statutory cash generated from operations before exceptional External revenue (Reported) 3,132 3,064 items, net of capex on property, plant and equipment (excluding capex relating to the redevelopment of our London headquarters)

Internal supply 525 463 information Additional and intangible assets, and including the cash impact of high end Total revenue (Adjusted) 3,657 3,527 production tax credits.

Adjusted net debt Free cash flow Net debt (as defned in note 4.1) is adjusted for all our fnancial This is our measure of free cash flow after we have met our fnancial commitments. This better reflects how credit rating agencies obligations. It takes our adjusted cash flow (see above) and removes look at our balance sheet. A reconciliation between net debt and the impact of net interest, adjusted cash tax (which is total tax adjusted net debt is provided below. paid adjusted to exclude the receipt of production tax credits) and pension funding. A full reconciliation is included on pages 45 and 46. 2017 2016 Twelve months to 31 December £m £m Net debt (912) (637) Expected contingent payments on acquisitions (292) (328) Net pension defcit (83) (328) Operating leases* (143) (344) Adjusted net debt (1,430) (1,637) Adjusted net debt to adjusted EBITDA 1.6x 1.8x Reported net debt to adjusted EBITDA 1.0x 0.7x * 2017 excludes transponder costs, which are now treated as service contracts. See page 128 for further detail. The comparator has not been re-presented. 35 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Key We have deﬁned our KPIs to align Performance our performance and accountability Indicators to our business segments and strategy.

Adjusted EBITA Definition Performance 885

This is the key proﬁtability measure used across the whole business. Adjusted earnings In 2017, adjusted EBITA decreased by £43 million or 5%, predominantly due to a £81 million 865 before interest, tax and amortisation (EBITA) is calculated by adding back exceptional items or 5% decline in NAR. This was partially offset by growth from high margin Online, Pay & 842 and high end production tax credits. It reflects the underlying performance of the business Interactive, £25 million lower programming budget due to the absence of a major sports 730 Financial and provides a more meaningful comparison of how the business is managed and measured tournament, delivery of £29 million of overhead savings, and foreign exchange beneft. 620 on a day-to-day basis. Group adjusted EBITA margin decreased by two percentage points to 27% driven by the Further detail on this measure is included within the Alternative Performance Measures decline in NAR and revenue mix within ITV Studios. 2017 section, page 34. £842m 13 14 15 16 17

Adjusted EPS Definition Performance

adding back exceptional items and high end production tax credits. Further adjustments £33 million (2016: £26 million). 13.8

include amortisation and impairment of assets, net ﬁnancing costs and the tax effects 11.2 relating to these items. It reflects the business performance of the Group in a consistent manner and in line with how the business is managed and measured on a day-to-day basis. 2017 Further detail on this measure is included within the Alternative Performance Measures 16.0p section, page 34. 13 14 15 16 17

Proﬁt Definition Performance Proft to cash conversion represents the proportion of adjusted EBITA converted into a Proﬁt to cash remains high at 91% (2016: 97%). In the year we saw an increase in working 97 to cash conversion 97 91 91 measure of adjusted cash flow, after capex on property, plant and machinery (excluding capex capital. This was due to the payment schedule for sports rights for future years and the 91 relating to the redevelopment of our London headquarters). Further detail on this measure timing difference between the production and the fnal delivery and payment of scripted is included within the Alternative Performance Measures section, page 34. and entertainment titles such as Snowpiercer, Good Witch, Vanity Fair, Poldark, Dancing on Ice and Survival of the Fittest. This measures the effectiveness of our working capital management and capital expenditure control. 2017 91% 13 14 15 16 17

Non-NAR revenue Definition Performance Non-NAR reflects all ITV revenue, both internal and external, except NAR (spot advertising Non-NAR revenue increased by 11% in 2017 as we continue to rebalance the business 2,066

revenues). Online, Pay, Interactive, Sponsorship, SDN and ITV Studios revenues are all included away from a reliance on NAR. We delivered strong growth in ITV Studios total revenue 1,855

within Non-NAR, with the key drivers of growth being Online and ITV Studios. and double-digit growth in Online. Non-NAR revenues were 56% of total revenue which 1,664

has increased from 53% in 2016. 1,327 Growing non-NAR is key to the strategy as we aim to rebalance the business away from our 1,211 reliance on television advertising revenue. 2017 £2,066m 13 14 15 16 17

Definition Performance

Employee 91 90 90 89 engagement Continuing to develop a creative, commercial and global organisation requires high-quality There was no employee engagement survey in 2017. Employee engagement for the last employees who are engaged in and motivated by the work that they do. survey performed in 2016 was 90% with an 80% participation rate. nancial fi Employee engagement measures pride in the work we do, pride in working for ITV and also A full employee engagement survey is expected in 2018. what we say about our programmes and services. Non-

2016 90% 13 14 15 16

36 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Key Performance Indicators Strategic Report

Broadcast & Online – building ITV Studios – growing an our free-to-air, online and international content and pay business distribution business

Adjusted EBITA Definition Performance 885

Adjusted EPS Definition Performance

Adjusted EPS represents the adjusted profit for the year attributable to equity shareholders. Adjusted EPS decreased by 6% from 17.0p to 16.0p. This is higher than the corresponding 17.0 16.5 Adjusted profit is defined as profit for the year attributable to equity shareholders after decrease in adjusted EBITA of 5% due to higher adjusted fnancing costs in the year of 16.0 adding back exceptional items and high end production tax credits. Further adjustments £33 million (2016: £26 million). 13.8 include amortisation and impairment of assets, net financing costs and the tax effects 11.2 relating to these items. It reflects the business performance of the Group in a consistent manner and in line with how the business is managed and measured on a day-to-day basis. 2017 Further detail on this measure is included within the Alternative Performance Measures 16.0p section, page 34. 13 14 15 16 17

Proﬁt Definition Performance Proft to cash conversion represents the proportion of adjusted EBITA converted into a Proﬁt to cash remains high at 91% (2016: 97%). In the year we saw an increase in working 97 to cash conversion 97 91 91 measure of adjusted cash flow, after capex on property, plant and machinery (excluding capex capital. This was due to the payment schedule for sports rights for future years and the 91 relating to the redevelopment of our London headquarters). Further detail on this measure timing difference between the production and the fnal delivery and payment of scripted StatementsFinancial is included within the Alternative Performance Measures section, page 34. and entertainment titles such as Snowpiercer, Good Witch, Vanity Fair, Poldark, Dancing on Ice and Survival of the Fittest. This measures the effectiveness of our working capital management and capital expenditure control. 2017 91% 13 14 15 16 17

revenues). Online, Pay, Interactive, Sponsorship, SDN and ITV Studios revenues are all included away from a reliance on NAR. We delivered strong growth in ITV Studios total revenue 1,855 within Non-NAR, with the key drivers of growth being Online and ITV Studios. and double-digit growth in Online. Non-NAR revenues were 56% of total revenue which 1,664

has increased from 53% in 2016. 1,327 Growing non-NAR is key to the strategy as we aim to rebalance the business away from our 1,211 reliance on television advertising revenue. 2017

£2,066m information Additional 13 14 15 16 17

Definition Performance

2016 90% 13 14 15 16

37 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Key Performance Indicators continued

ITV Family Definition Performance

Keeping our free-to-air proposition strong and our audiences healthy is vital for the Broadcast ITV Family SOV grew 2% in 2017 to 21.7%. Within this, the ITV main channel was up 1% with 23.1

share of 22.0 21.7 21.3 & Online business, and ITV Family SOV helps measure this. ITV Family SOV is the total viewing strong performances from daytime, the soaps, drama and entertainment. The digital channels 21.2 viewing audience over the year achieved by ITV’s family of channels as a proportion of total television were up 3% in the year mainly across ITV2 and ITV4. ITV2 viewing amongst 16–34s continues viewing, including the BBC Family. to grow, with 16–34s SOV up 18% in the year. It remains the most popular digital channel in the UK based on SOV and is the largest digital channel for 16–34s.

ITV also continues to deliver mass audiences and in 2017 delivered 99% of all commercial 2017 Broadcast & Online & Broadcast audiences over fve million and 96% over three million, which is unchanged from 2016. 21.7% 13 14 15 16 17

ITV Family share of Definition Performance

To maintain our position as a leading commercial broadcaster, we need to have strong ITV ITV Family SOCI was broadly flat year-on-year, with ITV main channel flat and the digital 38.3

commercial impacts 36.2 34.9 34.4 Family SOCI. SOCI is the trading currency in the television advertising market, and since it only channels up 1%. ITV2 is now more targeted towards younger viewers with SOCI amongst 34.5 covers commercial television it does not include the BBC. This is the share of total UK television 16–34s up 17% in the year. ITV4 is more targeted towards male viewers with Men SOCI commercial impacts which is delivered by ITV’s family of channels. An impact is one viewer up 12% in the year. ITV3 is targeted to ABC1 adults with SOCI up 1% in the year for this watching one 30-second commercial. SOCI provides an overall measure of viewing performance. demographic. The move of The Great British Bake Off from BBC1 to C4 affected ITV However, because advertisers are buying scale and breadth of audience, SOCI is not necessarily main channel’s SOCI performance in the year. a direct indicator of advertising performance. 2017 34.5% 13 14 15 16 17

ITV Family share Definition Performance of broadcast ITV’s share of UK television spot advertising revenue is known as its share of broadcast (SOB). We again gained share in 2017 as a result of our unique ability to deliver mass audiences across 47.4 47.6

the key demographics to our advertisers and more targeted demographics on our digital 46.1 45.9 45.4 Our SOB has always been based on our estimate of the pure spot advertising market, excluding channels. This was helped by ITV’s coverage of the horse racing, which targets the male sponsorship, VOD and all broadcasters’ self-promotion revenues on their own channels, which demographic and is highly demanded by advertisers. Our SOB increased to 47.6% in the year. this year has seen a signifcant increase and therefore further distorts the external spot market.

It is increasingly diffcult to measure the total television advertising market as all broadcasters have different defnitions and include other sources of revenue, such as sponsorship and VOD, 2017 in their estimates of television advertising. 47.6% 13 14 15 16 17

Total long-form Definition Performance 1,426 video requests We remain focused on growing our audience share from our free-to-air broadcast Long-form video requests were up 34% in 2017 to 1,426 million views supported by and increasingly from our VOD business as well. our continued investment and focus on the ITV Hub, mobile apps and simulcast offering. Online consumption, which is the measure of how long viewers are spending online, 1,066 Long-form video requests is a measure of the total number of our videos requested across is an important indicator of online performance and this increased by 39% in 2017. 828 726

all platforms on which the ITV Hub is available and therefore provides a key measure of how 577 much of our content is being viewed online. A long-form video is a programme that has been 2017 broadcast on television and is available to watch online and on demand in its entirety. 1,426m 13 14 15 16 17

Number of new Definition Performance

As we grow our international content business, tracking the performance of the creative There was strong growth in the number of new commissions for ITV Studios in 2017, up 5% 239 commissions for 228 renewal pipeline and the number of new commissions won is a key indicator. This fgure to 239. Eighty three of these new commissions came from the UK business, with the remaining ITV Studios includes programmes shown both on ITV and on other broadcasters, and both in the UK 156 coming from our international businesses. In addition, there were 240 recommissions in 166

and internationally. the year (2016: 188) with 106 from ITV Studios UK and 134 from the international businesses. 149 ITV Studios

121 We continue to invest in our creative pipeline, building on our existing portfolio of programmes and formats. We are particularly focused on the genres that can return and travel, namely drama, 2017 entertainment and factual entertainment. 239 13 14 15 16 17

Percentage of Definition Performance 66 63 60 60 ITV* output from As an integrated producer broadcaster, part of our strategy is to use our broadcast channels The percentage of ITV output from ITV Studios increased to 66% in 2017 driven by new 59 as a platform for ITV Studios content where we aim to make them famous and then sell them entertainment programmes in the year such as The Voice, The Voice Kids and Cannonball ITV Studios around the world. as well as an extra episode of Coronation Street during 2017. Many of the ITV Studios programmes broadcast in 2017 have now been distributed around the world including The proportion of the total spend on original commissions on ITV transmitted in the year, Victoria, Cold Feet, The Chase, The Voice and I’m A Celebrity… Get Me Out Of Here!

delivered by ITV Studios, demonstrates this and our current aim is to increase ITV Studios supply 2017 of programmes to ITV. * ITV main channel only. 66% 13 14 15 16 17

38 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Key Performance Indicators

Broadcast & Online ITV Studios Strategic Report

ITV Family Definition Performance

Keeping our free-to-air proposition strong and our audiences healthy is vital for the Broadcast ITV Family SOV grew 2% in 2017 to 21.7%. Within this, the ITV main channel was up 1% with 23.1

ITV Family share of Definition Performance

To maintain our position as a leading commercial broadcaster, we need to have strong ITV ITV Family SOCI was broadly flat year-on-year, with ITV main channel flat and the digital 38.3 commercial impacts 36.2 34.9 34.4 Family SOCI. SOCI is the trading currency in the television advertising market, and since it only channels up 1%. ITV2 is now more targeted towards younger viewers with SOCI amongst 34.5 covers commercial television it does not include the BBC. This is the share of total UK television 16–34s up 17% in the year. ITV4 is more targeted towards male viewers with Men SOCI Governance commercial impacts which is delivered by ITV’s family of channels. An impact is one viewer up 12% in the year. ITV3 is targeted to ABC1 adults with SOCI up 1% in the year for this watching one 30-second commercial. SOCI provides an overall measure of viewing performance. demographic. The move of The Great British Bake Off from BBC1 to C4 affected ITV However, because advertisers are buying scale and breadth of audience, SOCI is not necessarily main channel’s SOCI performance in the year. a direct indicator of advertising performance. 2017 34.5% 13 14 15 16 17

Number of new Definition Performance

39 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Finance ITV’s strong operational performance Review in a challenging year reflects the continued beneft of rebalancing the business.

Ian Griffths Chief Operating Offcer and Group Finance Director

40 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Finance Review Strategic Report

ITV delivered a strong operational performance in a challenging Adjusted EBITA tracker year with ongoing economic and political uncertainty in the UK. ITV took action early to reduce overhead costs but the continued £m uncertainty has undoubtedly had an impact on the demand 900 for television advertising and therefore as expected, on ITV’s 885 22 29 fnancial performance. 850 25 8 6 (15) 842 We set ourselves challenging objectives to grow our on-screen Governance 800 (37) and online viewing and deliver good growth in non-NAR, and we (81) have delivered on these. On-screen, our share of viewing grew for the second consecutive year, up 2%, online viewing was up 39%, 750 Online, Pay & Interactive revenues grew 7% and ITV Studios total revenues grew 13%, including currency. In total, ITV delivered 2% 700 external revenue growth to £3,132 million, with the 11% increase 2016 NAR Network Online, ITV The Voice FX & Cost Invest- 2017 Schedule Pay & Studios of China Other Savings ments in non-NAR to £2,066 million more than offsetting the 5% decline Interactive Underlying in spot advertising revenue.

Twelve months to 31 December – 2017 2016 Change Change Adjusted fnancing costs were higher year-on-year due to the bond on a continuing basis £m £m £m % issue. We made a number of investments in associates, including NAR 1,591 1,672 (81) (5) Blumhouse Television and Circle of Confusion and our joint venture BritBox US, and our adjusted tax rate was the same year-on-year. Total non-NAR 2,066 1,855 211 11 The net of these movements and the decline in NAR resulted in Total revenue 3,657 3,527 130 4 a 6% decline in adjusted EPS to 16.0p. Statutory EPS was down 9% Internal supply (525) (463) (62) 13 to 10.2p due to the decline in EBITA and higher amortisation and

Group external revenue 3,132 3,064 68 2 impairment, which is explained over the following pages. StatementsFinancial

Group adjusted EBITA 842 885 (43) (5) Our key strengths include our high margins and healthy cash flows, which, together with our ongoing focus on costs, places us in a good Group adjusted EBITA margin 27% 29% position to continue to invest in growing an even stronger and more resilient business going forward, while delivering sustainable returns Adjusted EPS 16.0p 17.0p (1.0)p (6) to our shareholders. Statutory EPS 10.2p 11.2p (1.0)p (9) Dividend per share 7. 8p 7.2p 0.6p 8 This Finance Review focuses on the more technical aspects of our Net debt as at 31 December (912) (637) (275) fnancial results while the operating and fnancial performance has been discussed within the Operating and Performance Review on pages 22 to 32. Adjusted EBITA declined 5% to £842 million, with the £81 million decline in NAR partly offset by £29 million overhead savings, Our Alternative Performance Measures, which are detailed on pages £25 million lower programme budget due to no major sports 34 and 35 explain the adjustments we make to our statutory results tournament, growth from high margin Online, Pay & Interactive and focus on the key measures that we report on internally and use and foreign exchange beneft. ITV Studios showed good underlying as KPIs across the business. proft growth but the comparator included £37 million beneft Additional information Additional of the four year licence deal for The Voice of China which was recognised in full in accordance with accounting standards. ITV Studios adjusted EBITA was flat at £243 million. Group adjusted EBITA was also impacted by £15 million of investment including in the ITV Hub, ITV Box Offce and ITV Studios creative capability, particularly in America.

41 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Finance Review continued

Exceptional items Net financing costs

2017 2016 2017 2016 Twelve months to 31 December £m £m Twelve months to 31 December £m £m Operating exceptional items: Financing costs directly attributable Acquisition-related expenses (96) (131) to loans and bonds (30) (22) Restructuring and property-related costs (30) (14) Cash-related net fnancing costs (2) (3) Insured trade receivable provision (27) – Amortisation of bonds (1) (1) Pension curtailment – (19) Adjusted fnancing costs (33) (26) Total operating exceptional items (153) (164) Mark-to-market on swaps and Non-operating exceptional items (1) – foreign exchange – (3) Total exceptional items (154) (164) Imputed pension interest (9) (5) Unrealised foreign exchange and other net fnancial losses (8) (17) Total exceptional items in the year were £154 million (2016: £164 million). Operating exceptional items principally relate to Net fnancing costs (50) (51) acquisition-related expenses, which are mainly performance based employment-linked consideration. Restructuring and property- Adjusted fnancing costs increased to £33 million (2016: £26 million) related costs of £30 million include £24 million of incremental primarily due to the full year impact of the new €500 million one-off property project costs associated with our planned London Eurobond issued in December 2016. property move in 2018, primarily related to temporary rent and accelerated depreciation on fxtures and fttings. We will continue Net fnancing costs were £50 million in 2017 which was broadly flat to incur exceptional rental costs over the next four or fve years year-on-year (2016: £51 million). The increase in adjusted fnancing until we return to our headquarters at The London Television costs was offset by lower unrealised foreign exchange and other Centre. Further details can be found later in the section. net fnancial losses. These costs largely relate to the movement in Restructuring and property-related costs also include £6 million the value of put and call options for unowned equity on acquisitions of redundancy costs in relation to the closure of the London we have made when it is not dependent on the seller remaining Studios business. within the business. The put and call options normally run for three to fve years. The value in the put and call option will fluctuate with The insured trade receivable provision of £27 million relates to currency and the expected performance of the business. the unpaid portion of revenue from the four year licence deal for The Voice of China with Talent Television and Film Co. Ltd (Talent), JVs and associates the revenue for which was fully recognised in 2016 in accordance The share of losses from JVs and associates has increased to with accounting standards as ITV had no further obligations under £4 million (2016: nil) and is in relation to losses arising on our the terms of the agreement. Following a breach of the agreement investments in BritBox US (a US based SVOD service launched as a by Talent as they had not fulflled their payment obligations, we joint venture with the BBC in the US in 2017) along with Blumhouse have taken back the licence for The Voice of China. ITV is pursuing Television and Circle of Confusion, both of which are scripted talent Talent vigorously for the £30 million still due under the agreement. investments within ITV Studios. Further, ITV has credit insurance in place and a claim has been submitted. ITV will continue to pursue the amounts due and Profit before tax believes there will ultimately be no material impact. Whilst ITV is Adjusted proft before tax, after amortisation and impairment confdent that it will recover the amount due, accounting standards of assets and fnancing costs, was down 6% at £800 million (2016: set very specifc requirements for the recognition of contingent £847 million). Statutory proft before tax decreased by 10% to assets, which is how the recovery of the amount due will be £500 million (2016: £553 million), due to the decline in EBITA accounted for. As discussions with the insurers and the claim as explained earlier, along with higher costs associated with against Talent are in progress, at this early stage of pursuing amortisation and impairment of acquired assets in the year. recovery ITV is not able to demonstrate suffcient certainty for accounting purposes, to be able to recognise a cash receivable at Proft before tax (PBT) the year end. Accordingly, ITV has made a provision amounting to 2017 2016 £27 million (£30 million net of £3 million insurance excess) against Twelve months to 31 December – on a continuing basis £m £m the Talent receivable recorded in our accounts in the year ended Proft before tax 500 553 31 December 2017. The cash received in future will also be treated Production tax credits 32 28 as an exceptional item. Exceptional items 154 164 The cash cost of exceptionals in 2017 was £126 million. Amortisation and impairment* 97 77 Adjustments to net fnancing costs 17 25 The pension curtailment in 2016 related to the closure of the Adjusted proft before tax 800 847 defned beneft pension sections of the ITV pension scheme to * In respect of assets arising from business combinations and investments. future beneft accrual.

42 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Finance Review Strategic Report

Tax Cash tax Adjusted tax charge Cash tax paid in the year was £95 million (2016: £90 million), the The total adjusted tax charge for 2017 was £154 million (2016: majority of which was paid in the UK. The 2017 cash tax fgure is £160 million), corresponding to an effective tax rate on adjusted net of £23 million of production tax credits received in the year proft before tax (PBT) of 19% (2016: 19%), which is broadly in line (2016: £36 million). The cash tax paid is higher than the full year tax with the standard UK corporation tax rate of 19.25% (2016: 20%). charge for 2017 of £87 million largely due to the timing of receipt of We expect this effective tax rate to be sustainable over the medium production tax credits in the UK and Italy and the tax treatment of

term. The adjustments made to reconcile the tax charge with the allowable pension contributions. A reconciliation between the tax Governance adjusted tax charge are the tax effects of the adjustments made charge for the year and the cash tax paid in the year is shown below. to reconcile PBT and adjusted PBT, as discussed earlier. 2017 2016 Twelve months to 31 December £m £m 2017 2016 Twelve months to 31 December £m £m Tax charge (87) (100) Tax charge (87) (100) Temporary differences recognised through Production tax credits (32) (28) deferred tax (17) (13) Charge for exceptional items (12) (15) Prior year adjustments to current tax 2 (10) Charge in respect of amortisation and Current tax, current year (102) (123) impairment* (19) (11) Phasing of tax payments – UK 12 5 Charge in respect of adjustments to net Phasing of tax payments – overseas (11) 5 fnancing costs (4) (6) Production tax credits – timing of receipt (9) 7 Adjusted tax charge (154) (160) Cash tax impact of allowable UK pension Effective tax rate on adjusted profts 19% 19% payments 15 16 * In respect of intangible assets arising from business combinations and investments. Cash tax paid (95) (90)

Also reflects the cash tax beneft of tax deductions for US goodwill. StatementsFinancial Tax strategy Implications of US tax reforms ITV is a responsible business, and we take a responsible attitude to tax, As a result of the recent enactment of the Tax Cuts and Jobs Act recognising that it affects all of our stakeholders. In order to allow in the US, ITV has recognised a non-cash tax charge of £9 million, those stakeholders to understand our approach to tax, we have resulting from the revaluation of our US deferred tax assets to published our Global Tax Strategy, which is available on our reflect the reduction in the US federal corporate tax rate to 21% corporate website. from 1 January 2018. www.itvplc.com/investors/governance/policies We are working through the new legislative provisions in order to assess the full impact on our tax profle going forward, however We have four key strategic tax objectives : we do not expect them to have a material impact on the Group’s 1. Engage with tax authorities in an open and transparent effective tax rate. way in order to minimise uncertainty 2. Proactively partner with the business to provide clear, timely, relevant and business focused advice across all aspects of tax 3. Take an appropriate and balanced approach when considering how to structure tax sensitive transactions 4. Manage ITV’s tax risk by operating effective tax governance information Additional and understanding our tax control framework with a view to continuously adjusting our approach to be compliant with our tax obligations

Our tax strategy is aligned with that of the business and its commercial activities, and establishes a clear Group-wide approach based on openness and transparency in all aspects of tax reporting and compliance, wherever the Company and its subsidiaries operate. Within our overall governance structure, the governance of tax and tax risk is given a high priority by the Board and Audit and Risk Committee, including through the operation of the Tax & Treasury Committee. Further details of the Committee can be found on page 66. The ITV Global Tax Strategy as published on the ITV plc website is compliant with the UK tax strategy publication requirement set out in Part 2 Schedule 19 of the Finance Act 2016.

43 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Finance Review continued

EPS – adjusted and statutory Acquisitions Overall, adjusted proft after tax was down 6% at £646 million Since 2012, we have acquired a number of content businesses in (2016: £687 million). After non-controlling interests of £4 million the UK, US and creative locations across Europe, developing a strong (2016: £4 million), adjusted basic earnings per share was 16.0p portfolio of programmes that return and travel. As we have grown (2016: 17.0p), down 6%, which is marginally higher than the decrease in size and expanded our network relationships and distribution in adjusted EBITA of 5% due to an increase in adjusted fnancing capability, this has helped to renew and strengthen our creative costs to £33 million (2016: £26 million) and our investment in talent and build our reputation as a leading European producer associates in the year. The weighted average number of shares and distributor and a leading unscripted independent production declined marginally to 4,006 million (2016: 4,010 million) because company in the US. ITV bought shares during the year on behalf of the Employee Beneft Trust and, in line with accounting standards, shares held by During the year, we have strengthened our UK business with the the Trust are not included in the total share count. Diluted adjusted acquisition in April of a majority stake in World Productions, the EPS in 2017 was 16.0p (2016: 17.0p) reflecting a weighted average drama production company behind the critically acclaimed and diluted number of shares of 4,017 million (2016: 4,029 million). multi-award-winning Line of Duty. In October, we acquired a 25% The weighted average diluted number of shares was down year- stake in Koska Limited, a UK factual-entertainment production on-year because of a decrease in the number of shares expected start-up, founded by Nick Emmerson, co-creator of Supernanny. to vest in ITV’s long term incentive plans in the future. We are also making real progress in building a European scripted Statutory EPS declined by 9% to 10.2p (2016: 11.2p) due to the business. In February, we acquired a majority stake in Tetra Media decline in statutory EBITA as explained earlier, along with higher Studios, the French television production group behind leading costs associated with amortisation and impairment of acquired dramas including crime series Proflage, now in its seventh series, assets in the year. and Les Hommes de l’Ombre, the critically acclaimed political thriller. In October, we acquired a majority stake in Cattleya, the A full reconciliation between statutory and adjusted EPS is leading Italian independent producer behind international hit included within the Alternative Performance Measures section. TV dramas Gomorrah, Suburra and Romanzo Criminale, and in December we acquired a 25% stake in Apple Tree Productions, Dividend per share a Danish scripted production company headed up by the award- The Board has declared a fnal dividend of 5.28p, an increase of 10% winning producers of The Killing and The Bridge. (2016: 4.8p). This equates to a full year dividend of 7.8p (an increase of 8% year-on-year), which gives a cover of 2.1x and reflects our We have further strengthened our international business with confdence in the underlying strength of the business and the a number of other small investments and acquisitions. In April, outlook for 2018. we acquired a 45% stake in Blumhouse Television, established by Jason Blum, the renowned flm and television producer, which This is in line with the Board’s commitment to a long-term fnances and produces original scripted and unscripted ‘dark’ genre sustainable dividend policy and for ordinary dividends to grow programming for global audiences, including The Jinx and Cold Case broadly in line with earnings, targeting dividend cover of around Files. In May, we acquired a 49% stake in Circle of Confusion, a 2x adjusted earnings per share over the medium term. ITV plc had premier talent management and production company in the US, £1.6 billion of distributable reserves at 31 December 2017 available to launch Circle of Confusion Television Studios. The new television immediately to support the dividend policy. studio label will source, develop and produce premium scripted programming. Additionally, in June we acquired a majority stake Given that there is now a more normal ordinary dividend, fve in Elk Production, one of the leading independent production consecutive special dividends, leverage of 1x net debt to adjusted companies in Sweden. The company produces original formats EBITDA and the strategic refresh under way, the Board has decided such as the award-winning reality TV series Parneviks, along with not to pay a special dividend in respect of 2017. acquired formats including Ninja Warrior and Dessertmästarna.

Dividend per share p (ordinary) We have strict criteria for evaluating potential acquisitions. Financially, we assess ownership of intellectual property, earnings growth and valuation based on return on capital employed and discounted cash flow. We have a corporate cost of capital (WACC), 7.8p 7.2 which we flex when assessing investment opportunities reflecting the size, risk profle, geography and type of investment. We also use 6.0 our WACC to assess the performance of our investments and in the

4.7 year we had a 13% return on capital employed from our acquisitions, well in excess of our WACC. Strategically, we ensure an acquisition 3.5 target has a strong creative track record and pipeline in content 2.6 8% 2017 genres that return and travel, namely drama, entertainment and 1.6 YoY 7.8p factual entertainment, as well as succession planning for key 10 11 12 13 14 15 16 17 individuals in the business.

44 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Finance Review Strategic Report

Acquisitions – 2012 to 2017 (undiscounted)

Additional Expected Total Total Initial consideration future expected Expected maximum consideration paid in 2017 payments* consideration** payment consideration** Company Geography Genre £m £m £m £m period £m 2017 Various Various Content 81 – 44 125 2020–2024 418

Total for 2017 81 – 44 125 418 Governance Total for 2012–2016 Various Content & Broadcast TV 860 91 248 1,199 2018–2021 1,923 Total 941 91 292 1,324 2,341 * Undiscounted and adjusted for foreign exchange. All future payments are performance related. ** Undiscounted and adjusted for foreign exchange, including the initial cash consideration and excluding working capital adjustments.

We generally structure our deals with earnouts or with put and Expected future payments of £292 million have decreased by call options in place for the remainder of the equity, capping the £36 million since 31 December 2016, which is the net of the maximum consideration payable. By basing a signifcant part of the additional future payments relating to our 2017 acquisitions, the consideration on future performance in this way, not only can we €100 million payment made to John de Mol for the frst tranche of lock in creative talent and ensure our incentives are aligned, but his earnout and foreign exchange on future payments denominated we also reduce our risk by only paying for the actual, not expected, in foreign currency. At 31 December 2017, £161 million of expected performance delivered over time. We believe this is the right way future payments had been recorded on the balance sheet. to structure our deals as we should not pay upfront for future performance and should incentivise and reward delivery by the In 2018, around £78 million will be payable on our acquisitions, business over time. primarily to those based in the US. Financial StatementsFinancial The majority of earnouts or put and call options are dependent on Cash generation the seller remaining within the business, the most signifcant of Proft to cash conversion which is for Talpa Media whereby the total maximum consideration, 2017 2016 including the payment made to date, is up to €1.1 billion, which is Twelve months to 31 December £m £m contingent on Talpa Media continuing to deliver signifcant proft Adjusted EBITA 842 885 growth to 2022 as well as John de Mol’s continued commitment Working capital movement (58) (28) to the business during this time. To date, we have paid €600 million Adjustment for high end production to John de Mol including €100 million for the frst tranche of the tax credits (9) 8 earnout which was paid out in full in May 2017. Under the deal structure, because all future payments are directly related to John Depreciation 30 31 de Mol remaining with the business, these payments are treated as Share-based compensation and pension employment costs and therefore are part of our statutory results. service costs 13 10 However, we exclude them from adjusted profts and adjusted EPS Acquisition of property, plant and as an exceptional item, as in our view, for the reasons set out above, equipment and intangible assets (71) (44) these items are part of capital consideration reflecting how we Adjustment for capex relating to structure our transactions and do not form part of the core redevelopment of London headquarters 16 – operations. This is consistent with our treatment of all costs Adjusted cash flow 763 862 information Additional of this type. Proft to cash ratio 91% 97% The table above sets out the initial consideration payable on our Note: Except where disclosed, management views the acquisition of operating property, plant and equipment and intangibles as business as usual capex, necessary to the ongoing acquisitions, our expected future payments based on our current investment in the business. view of performance and the total maximum consideration payable, which is only payable if exceptional compound earnings growth is delivered.

We closely monitor the forecast performance of each acquisition and, where there has been a change in expectations, we adjust our view of potential future commitments.

45 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Finance Review continued

One of ITV’s key strengths is its healthy cash flows reflecting our Net debt tracker ongoing tight management of working capital balances and our disciplined approach to cash and costs. This is particularly important £m when there is wider political and economic uncertainty. Remaining 0 527 focused on cash and costs means we are in a good position to (637) continue to invest across the business and deliver sustainable (450) returns to our shareholders. (494) (900) (126) In the year, we generated £763 million (2016: £862 million) of (95) (36) (20) (16) (15) (912) operational cash from £842 million (2016: £885 million) of adjusted EBITA, which equates to a strong proft to cash ratio of 91% after (1,350) capex (2016: 97%). In the year, we saw an increase in working capital. This was due to the payment schedule for sports rights for future (1,800) years, and the timing difference between the production and the Dec 16 Free Dividends Excep- Acquisi- Purchase Foreign London Other Dec 17 Net debt Cash tional tions, of shares exchange property Net Debt fnal delivery and payment of scripted and entertainment titles ﬂow items and for EBT retrans- capex such as Snowpiercer, Good Witch, Vanity Fair, Poldark, Dancing on Ice invest- lation ments of debt and Survival of the Fittest.

To facilitate our working capital management, we have a £100 million Funding and liquidity non-recourse receivables purchase agreement (free of fnancial Debt structure and liquidity covenants), which gives us the flexibility to access additional liquidity Our balance sheet strength, together with our healthy free cash when required. At the 31 December, £90 million of receivables were flow, enables us to continue to invest in opportunities to grow sold under the purchase agreement (2016: £35 million). the business and to make sustainable returns to our shareholders. We have a number of facilities in place to preserve our fnancial Free cash flow flexibility. We have a £630 million Revolving Credit Facility (RCF)

2017 2016 in place until 2022 (with the option to extend to 2023). We also have Twelve months to 31 December £m £m a bilateral fnancing facility of £300 million, which is free of fnancial Adjusted cash flow 763 862 covenants and matures in 2021. This provides us with suffcient Net interest paid (38) (20) liquidity to meet the requirements of the business in the short to medium term. The RCF has the usual fnancial covenants for this Adjusted cash tax* (118) (126) type of fnancing. Of the total £930 million of facilities in place, Pension funding (80) (80) £60 million was drawn down at 31 December 2017. Our policy is Free cash flow 527 636 to maintain at least £250 million of available liquidity at any point. *Adjusted cash tax of £118 million is total cash tax paid of £95 million excluding receipt of production tax credits, which are included within adjusted cash flow from operations, as In January 2017, we repaid the £161 million Eurobond as it matured. these production tax credits relate directly to the production of programmes. Net debt While our free cash flow after payments for interest, cash tax and 2017 2016 pension funding remained healthy in the period, it was down 17% At 31 December £m £m to £527 million (2016: £636 million). This was primarily due to the Gross cash (126) (561) year-on-year decline in adjusted EBITA along with the increase in working capital, as explained earlier. Gross debt 1,038 1,198 Net debt 912 637 Overall, after dividends (ordinary and special), acquisitions and acquisition-related costs, pension and tax payments, we ended the year with net debt of £912 million, compared with net debt of £1,074 million at 30 June 2017 and net debt of £637 million at 31 December 2016. Our net cash generation was weighted towards the second half of 2017 due to the payment in the frst half of the special dividend, the Talpa earnout and content acquisitions.

46 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Finance Review Strategic Report

Financing – gross debt Foreign exchange We are fnanced using debt instruments and facilities with a range As ITV continues to grow internationally, we are increasingly of maturities. Borrowings at 31 December 2017 were repayable exposed to foreign exchange on our overseas operations. We do not as follows: hedge our exposure to revenues and profts generated overseas, as this is seen as an inherent risk. We may elect to hedge our overseas

Amount repayable as at 31 December 2017 £m Maturity net assets, where material. To date, we have hedged a signifcant portion of the euro net assets arising from the Talpa Media acquisition. £630 million Revolving Credit Facility* 60 2022 Governance €600 million Eurobond 529 Sep 2022 ITV is also exposed to foreign exchange risk on transactions we €500 million Eurobond** 424 Dec 2023 undertake in a foreign currency. Our policy is to hedge a portion Other loans 25 Various of any known or forecast transaction where there is an underlying Total debt repayable on maturity** 1,038 cash exposure for the full tenor of that exposure, to a maximum of * Option to extend to 2023. fve years forward, where the portion hedged depends on the level ** Net of £20 million cross-currency swaps. of certainty we have on the fnal size of the transaction.

At 31 December 2017, £570 million of the £630 million RCF Finally, ITV is exposed to foreign exchange risk on the retranslation was undrawn. of foreign currency loans and deposits. Our policy is to hedge such exposures where there is an expectation that any changes in the Capital allocation and leverage value of these items will result in a realised cash movement over Our objective is to run an effcient balance sheet. We have always the short to medium term. believed that maintaining leverage below 1.5x net debt to adjusted EBITDA (2017 Adjusted EBITDA was £872 million) will optimise The foreign exchange and interest rate hedging strategy is our cost of capital and maintain our investment grade credit. discussed and approved by the ITV plc Board and implemented At 31 December 2017, reported net debt to adjusted EBITDA was by our internal Tax and Treasury Committee which oversees

1.0x (2016: 0.7x). Our priority has been to invest to drive organic governance and approval of tax and treasury related policies StatementsFinancial growth and we have made acquisitions where we have found the and procedures within the business. During 2017, we reviewed right opportunities. We balanced this investment with attractive our foreign exchange risk management policies and made returns to shareholders. Our investment decisions are based upon some amendments. There were no signifcant changes to value creation and returns analysis. Our returns analysis looks at the previous policy. the 360 degree value creation and the long-term future value of our investments in Broadcast and Studios. Foreign exchange sensitivity The following table highlights ITV’s sensitivity, on a full year basis, We also look at an adjusted measure of net debt, taking into to translation resulting from a 10% appreciation/depreciation in consideration all of our other debt-like commitments including sterling against the US dollar and euro, assuming all other variables the expected, undiscounted contingent payments on acquisitions, are held constant. An appreciation in sterling has a negative effect the net pension defcit, net of gilts held as security against a on revenue and adjusted EBITA; a depreciation has a positive effect. proportion of those liabilities, and the undiscounted operating lease commitments, which mainly relate to property. This adjusted Adjusted leverage measure better reflects how the credit rating agencies Revenue EBITA look at our balance sheet. This is important to monitor as our Currency £m £m investment grade rating is a key criteria when considering our US dollar ±50-60 ±6-8 overall capital allocation. At 31 December 2017, adjusted net debt Euro ±40-50 ±4-5 information Additional was £1,430 million (31 December 2016: £1,637 million) and adjusted net debt to adjusted EBITDA was 1.6x (31 December 2016: 1.8x). A reconciliation of net debt to adjusted net debt is provided in the Alternative Performance Measures section on page 35.

Credit ratings We are rated investment grade by two ratings agencies: BBB- (stable outlook) by Standard and Poor’s and Baa3 (stable outlook) by Moody’s Investor Services. The factors that are taken into account in assessing our credit rating include our degree of operational gearing, exposure to the economic cycle, as well as business and geographical diversity. Continuing to execute our strategy will strengthen our position against all these metrics.

47 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Finance Review continued

Pensions New accounting standards The net pension defcit for the defned beneft schemes at IFRS 9 Financial Instruments, is effective from 1 January 2018. From 31 December 2017 was £83 million (31 December 2016: £328 our assessment, there is no material impact on the Group’s results. million). The year-on-year reduction in the defcit reflects gains from asset values in the year, more accurate data on scheme IFRS 15 Revenue from Contracts with Customers, is effective from members based on the preliminary results of 1 January 2017 1 January 2018. An assessment of the impact on all of the Group’s actuarial valuation and our defcit funding contributions of £80 material revenue streams has been completed. The new standard million. The net pension defcit includes £38 million of gilts, which requires the Group to reclassify various costs attributable to are held by the Group as security for future unfunded pension revenue in the income statement. For the year ending 2017, there payments of four former Granada executives, the liabilities of will be no material impact on the Group’s revenue and no impact on which are included in our pension obligations. A full reconciliation the Group’s proft or the Group’s adjusted EBITA as detailed below: is included within note 3.7.

Impact in 2017 Actuarial valuation £m The last actuarial valuation was undertaken in 2014. On the basis Revenue line agreed with the Trustee, the combined defcits as at 1 January 2014 NAR (11) amounted to £540 million and are estimated to be at a broadly Other commercial income (1) similar level today. Online, Pay & Interactive 10 The Trustee is in the process of undertaking a full actuarial valuation Total Broadcast revenue (2) of all sections of the Scheme as at 1 January 2017, which we expect to agree during H1 2018. Operating costs (2)

Net pension defcit tracker Adjusted EBITA – £m IFRS 16 Leases, is effective from 1 January 2019. The detailed 0 20 (328) 53 assessment of the impact on the Group’s performance is ongoing. 6 145 During the early impact assessment, the Group has reviewed (100) (59) (83) the current accounting for the existing key service agreements, including satellite, transponder and playout agreements and (200) 80 concluded that those do not meet defnition of a lease and therefore should be classifed as service agreements under the (300) regulations of IFRS 16 and current accounting standards. Outside of the transmission infrastructure agreements, the adoption is likely (400) to have a material impact on the presentation of the Group’s assets Dec 16 Deﬁcit Update Change Change in Change Other Dec 17 and liabilities, mainly due to property leases. funding in scheme in assets inﬂation in bond membership assump- yields data tions See pages 122 and 123 for further detail on these new accounting standards. Defcit funding contributions The Group continues to make defcit funding contributions in line with the most recent actuarial valuation in order to eliminate the defcits in each section. The acccounting defcit does not drive the defcit funding contribution.

The total defcit funding contribution for 2017 was £80 million, which is consistent with the contributions payable in 2016. We do not expect a material change in the defcit funding contribution for 2018. Further details are included within note 3.7.

48 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Finance Review Strategic Report

London property 2018 full year planning assumptions In 2017, the Board made the decision to redevelop our headquarters Proft and Loss impact: at The London Television Centre for which we own the freehold. • Total schedule costs are expected to be £1,055 million to This requires relocating staff and studios for four to fve years to £1,060 million, an increase of around £30 million and weighted alternative accommodation before moving back into a new freehold to H1 due to the Football World Cup building. Therefore, ITV has taken rented offce and studios space • Total investments of around £15-£20 million in on-going in the interim while the new headquarters are constructed. new property, online and initial data investments

• Adjusted interest is expected to be around £35 million, Governance During the course of the project, ITV will ring-fence all incremental which is broadly unchanged from 2017 costs in relation to the redevelopment. Move costs, dual rates and • The adjusted effective tax rate is 19%, which is unchanged rent will be treated as exceptional costs in the P&L as they relate and expected to be sustainable over the medium term to the one-off property project that runs over several years • The translation impact of foreign exchange, assuming rates but we will no longer incur them once we return to The London remain at current levels, could have a £35 million negative Television Centre. Capital items will be capitalised as investment impact on revenue and £5 million negative impact on proft capex. Investment capex is excluded from capex for our adjusted cash measurements. • Exceptional items are expected to be around £85 million, mainly due to acquisition accounting and the London Property In 2017, ITV incurred £24 million of costs in relation to accelerated redevelopment project. depreciation for assets made redundant as a result of the move, move costs, dual rates and rent. These were exceptionalised as Cash impact explained above. ITV also incurred £16 million of costs for the ft • Total capex is expected to be around £100 million, comprising out of the interim offces and studios and in relation to planning of £60 million of regular capex to support the business and for the redevelopment of The London Television Centre which £40 million relating to the redevelopment of our London site were capitalised. • The cash cost of exceptionals will be around £85 million,

largely relating to accrued earnouts StatementsFinancial In 2018, ITV will incur move costs, dual running costs, dual rates and • Proft to cash is expected to be around 85%, reflecting our rent which will be exceptionalised as explained above. ITV will incur continued strong cash generation and investment in Studios around £40 million of cash costs for further ft-out of the interim working capital offces and studios space and further costs associated with the • Total pension defcit funding is expected to be £80 million, redevelopment of The London Television Centre, which will be unchanged subject to agreeing the triennial valuation capitalised. Depreciation associated with the ft-out of the interim offces and studios space will not be exceptionalised.

In February 2018, Lambeth Council planning committee passed a Ian Griffths resolution to grant planning permission for the new headquarters. Chief Operating Offcer and Group Finance Director The application now goes forward to the Greater London Authority for endorsement. Once all approvals have been granted, we expect to commence demolition of the current building in 2018. All build costs will be capitalised until we move back, which is expected in 2023, with the most signifcant investment capex to be incurred in 2021 and 2022. Additional information Additional Following the step up in London property operating costs in 2018, we do not expect future costs to be materially different from 2018 when we move back in 2023.

49 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Risks and As a producer and broadcaster, ITV’s business Uncertainties carries a number of risks, which we manage through our risk management framework. Our continuing success is dependent on how well we understand and manage our risks.

Risk management framework

The risk management framework sets out our processes for Board identifying, reviewing and managing our risks and is regularly assessed and adapted as the Company, industry and macro environment evolves.

Risks are primarily controlled through the risk management process. The Board has carried out a robust assessment of the principal risks facing the Company and details of these are set on out on the following pages. Risk appetite and culture Our ongoing process for risk identifcation, review and management is set out below and is consistent with last year.

ence – busin def ess of div es is in io l ns e , re G Management and Divisional Boards h ro T u Have responsibility for: : Management p e f c and Divisional u • The development and operation of the risk management n n a r Boards c framework and for the operation of our systems of internal t u i s o control. This includes: s n A s – Risk identifcation and assessment and establishing ,

d I n n controls and procedures to monitor and mitigate risks t

a e

r – Assessment and review of fnancial controls, policies and n

o a

i procedures to ensure risks are identifed and the processes l

t The Board

r and procedures are in accordance with and aligned to

p i the strategy t

O Operational Audit – Reviewing and monitoring the effectiveness of internal Risk Steering and Risk controls and putting in place remedial plans where Group Committee controls are weak or there are opportunities for improvement. Serious control weakness (if any) is reported to the Board and action taken as appropriate • Routinely reviewing and challenging risks and mitigations.

Operation and Assurance – three lines of defence • We are continuing to develop our three lines of defence model to better manage our risks. We are moving our approach to risk away from a rules and process driven system to a cultural people driven solution, which we believe encourages a focus on prevention rather than reaction to failure. The Leading Risk training programme in place for ITV Studios production management continues to be developed

50 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Risks and Uncertainties Strategic Report

• Sets strategic objectives

• Identifes and evaluates principal risks and uncertainties Governance • Sets our strategy on risk and establishes tolerance levels and risk appetite • Ensures a robust and appropriate risk management framework is in place • Continually monitors the risk management and internal control systems

The Board is responsible for setting the level of risk the Company is willing to take in line with our strategy. There are clear approval frameworks in place and we continue to develop our approach to ensure that the business understands the Board’s risk appetite and the tolerance levels and track the key risk indicators to help manage each risk.

Throughout the year, we have continued to focus on and strengthen our risk culture. We have an open communication culture where information is shared and issues are escalated as appropriate. Financial StatementsFinancial

Operational Risk Steering Group Audit and Risk Committee Has responsibility for: Has responsibility for: • Considering and setting actions for improving controls and • Overseeing and advising the Board on risk exposures mitigations for pan ITV risks and for ongoing monitoring and future mitigation strategy of those actions • Reviewing internal controls and their effectiveness. • Reviewing incident reports and other statistics • Reviewing the effectiveness of the risk management • Reviewing policies and processes to ensure they remain framework ft for purpose • Conducting in-depth reviews of high-risk business • Identifying and reporting emerging risks areas or processes • Identifying and resolving issues • Setting the internal audit plan to ensure key risks are covered in respect of providing assurance Risk areas in scope of the group and sub-committees that • Reviewing internal audit actions and management deal with specifc risk areas are set out in the governance responsiveness to the fndings framework on page 66. Details of risk reviews undertaken during the year are The Chairman of the Audit and Risk Committee attends set out in the Audit and Risk Committee Report on page 72.

meetings of the Operational Risk Steering Group periodically. information Additional

1 Business divisions 2 Group functions 3 Internal audit • The business divisions own the • Including Group Finance, Legal, • Internal Audit provides objective assurance management of their risks Human Resources, Group Secretariat, as to the effectiveness of the Group’s and are responsible for: Technology, Procurement, Health & systems of internal control and risk – Identifying and reporting local risks Safety, Tax & Treasury and Insurance management, reporting to the – Maintaining risk registers and business • Support the business divisions Management Board, Divisional boards continuity plans where appropriate in managing risks. and the Audit and Risk Committee. – Reviewing and implementing • The internal audit plan is driven from ITV’s mitigating actions and controls risk management framework. Internal Audit reviews the auditable elements of the principal and operational risks and this review informs the areas and topics that Internal Audit focuses on.

51 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Risks and Uncertainties continued

Principal risks

For each principal risk, mitigating actions have been identifed and the risk has been mapped to its relevant business segment and, where possible, assigned key risk indicators. Risk direction has also been given to each risk which is after mitigation. Where appropriate, the key risk indicators are aligned to our key performance indicators (KPIs) on pages 36 to 39. All principal risks are owned by at least one member of the Management Board.

The Management and Divisional Boards have reviewed ITV’s principal risks and uncertainties and these potential risks are predominantly unchanged.

Link to Risk Potential Risk Key Drivers Mitigating Factors and Risk Direction business direction The Market There is a major decline • The current economic • ITV has made signifcant progress in in advertising revenue environment is uncertain, rebalancing the business and 56% of our due to economic which may impact demand for total revenue comes from sources other uncertainty and ITV advertising than television spot advertising does not build suffcient • Growing non-NAR in areas such as ITV non-NAR revenue Studios and Online, Pay & Interactive, streams to mitigate remains a key priority of the business the fnancial impact • The Company has adequate fnancial of this decline. liquidity and balance sheet flexibility to continue to invest as ITV maintains its focus on cash and costs

A faster than expected • Television is now available on • The business continues to develop the shift to VOD or other many different devices and ITV Hub VOD services, maximise the new technologies, platforms, which is changing distribution of the ITV Hub and grow such as internet enabled the way people are consuming its VOD advertising business televisions or online television and viewers are now • ITV monitors the market for new technology only services, causes a spending more time watching and where appropriate explores how ITV sustained loss of viewing content online can participate and advertising revenue. • This structural shift is • ITV continues to invest around £1 billion impacting the advertising in its programme budget annually market in the UK as digital • ITV is focused on ensuring that television advertising continues to provides a trusted and safe environment for grow strongly advertisers and delivers the highest return • While growing rapidly, online on investment of any advertising media. viewing remains a small • ITV has launched its SVOD proposition, percentage of total viewing Britbox, in the US and Canada at around 12% (2016: 9%, • Cirkus, our SVOD proposition, has been source: BARB/Thinkbox data) rolled out further and is now in the Nordics and television advertising and Germany represents 25.5% of total advertising in the UK, which This risk has increased since last year is slightly down on 2016 as online viewing is growing particularly (2016: 27.5%) amongst younger viewers.

52 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Risks and Uncertainties Strategic Report Broadcast & Online – building our Risk direction (after mitigation) since 2016 free-to-air, online and pay business Increased risk

Risk stayed the same ITV Studios – growing an international content and distribution business Reduced risk

Link to Risk Potential Risk Key Drivers Mitigating Factors and Risk Direction business direction Talent and People A signifcant event • In the ordinary course of • There is a business resilience plan in place, removes a number of business activities, there will be which includes succession plans or nominated the key management times when the Management replacements for all key positions within team from the business Board is in one location or the Company on a long-term or travel together as a group permanent basis. Governance

ITV fails to evolve its • Employing the best creative, • Employee engagement is critical and we organisational structure commercial and management continue to monitor it through our employee and culture and therefore talent is key to our success surveys, which take place every two years fails to attract, develop • Failing to create the right (90% engagement in 2016 employee survey) and retain key creative, culture to attract and retain • ITV constantly reassesses the business commercial and this talent increases this risk to create a ft-for-purpose organisation management talent. • ITV is focused on working across the business to embed and strengthen the culture of ‘One ITV’ way of working • ITV invests in training and development programmes • Succession plans are in place for all key positions within the Company Operational There is signifcant loss • There is increased competition • ITV is focused on both protecting and Financial StatementsFinancial of programme rights or for high-quality programme exploiting existing rights and ensuring ITV fails to identify and rights as broadcasters and that future rights generated accrue to ITV obtain the optimal rights platform owners demand • As an integrated producer broadcaster, packages. brand defning content ITV produces a signifcant proportion of the • The signifcant budgets of the broadcast schedule. In 2017, this increased new platforms, such as Netflix to 66% of the main channel’s original and Amazon, have changed the commissions market for on-screen and • ITV invests in creating and owning quality off-screen talent, which has content through ITV Studios impacted the cost of content • ITV maintains good relationships with independent producers to ensure it has opportunities to acquire quality content • ITV has a detailed model to evaluate the value of third-party rights to ensure it only buys rights that make economic sense This risk and opportunity has increased since Additional information Additional last year as OTT platforms are increasing their programme spend. This presents an opportunity for ITV Studios to supply content to them.

ITV fails to create, own • Our ability to create and • ITV maximises opportunities for ITV Studios and protect the rights to own hit programmes depends to create successful shows by investing a suffcient number of hit on the quality of our content in the creative pipeline and focusing on programmes/formats business programmes and genres that can return across its international • ITV is the largest UK commercial and travel internationally, i.e. drama, portfolio of content producer and a leading entertainment and factual entertainment, companies. independent non-scripted as evidenced by our increased investment producer in the US and Europe in producing scripted content • ITV is focused on hiring and retaining the right key creative talent

53 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Risks and Uncertainties continued

Link to Risk Potential Risk Key Drivers Mitigating Factors and Risk Direction business direction Operational ITV does not react quickly • In a fast-changing media • Investment opportunities and decisions are enough to changes in the environment, there is an made by the relevant board based on their broader market and fails increased risk that sub-optimal strategic ft and return on investment profle to properly resource, investment decisions are made • Talent management plans have been fnancially, creatively developed and reviewed to ensure adequate and operationally, the succession planning across ITV new growth businesses, • ITV continues to embed and strengthen in particular online the culture of ‘One ITV’ way of working and international content. • Lessons from recent investments are captured through post-acquisition reviews Technology A major incident results • ITV’s broadcast technology • A risk register of broadcast operations, in ITV being unable to chain is complex because it including key outsourced functions, continue with scheduled operates in multiple regions is in place and reviewed on a regular basis broadcasting for a and links to many platforms • There are business continuity and disaster sustained period of time. • Risk can therefore materialise recovery plans in place in high risk areas within ITV or with third parties to help deliver a rapid and flexible response responsible for servicing the • Major incident scenario testing takes place broadcast supply chain bi-annually • With the move out of • ITV has ongoing modernisation projects Southbank, ITV will be using to ensure transmission and distribution third-party managed studio technologies are ft-for-purpose facilities for some of its • ITV continues to proactively manage its daytime shows broadcast chain partners and suppliers to ensure the risk of incidents and regulatory breaches is minimised

ITV remains heavily • Our system requirements • System requirements are kept under reliant on legacy systems, change as we continue to review with business growth and system which could potentially rebalance the business, grow modernisation projects implemented restrict the ability to new revenue streams and as appropriate grow the business. These become increasingly • A modernisation plan is in place for the systems and processes international legacy systems, which remains under may not be appropriate constant review and development to ensure for new non-advertising technology systems meet the needs of revenue or rapid the business international growth. • Cyber risk mitigations in relation to all of our systems are set out on page 55.

54 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Risks and Uncertainties Strategic Report Broadcast & Online – building our Risk direction (after mitigation) since 2016 free-to-air, online and pay business Increased risk

Risk stayed the same ITV Studios – growing an international content and distribution business Reduced risk

Link to Risk Potential Risk Key Drivers Mitigating Factors and Risk Direction business direction Technology Impact of cyber attack • Cyber security is an increasing • By establishing further internal cyber on ITV risk as our business develops controls across our devices, apps, networks There is a sustained cyber new revenue streams and and servers, we have improved our ability to attack causing prolonged direct to consumer monitor, detect and respond to cyber threats system denial or major propositions • We continue to educate our colleagues in reputational damage, • With increasingly sophisticated order to improve our ability to spot, avoid Governance for example: technology and proliferation of and report cyber attacks • The ability to broadcast cyber hacking tools, along with • We have worked with specialist security our channels increased amounts of company organisations to implement 24x7 monitoring • The availability of data, the risk of a cyber attack of our network traffc and during the year ITV Hub has increased across the world they conducted cyber simulation and • ITV loses a signifcant • There are a growing volume phishing exercises volume of personal of software and hardware • We have enhanced our process for the risk or sensitive data vulnerabilities being identifed assessment of third-party security as our • Corporate systems are by technology providers in cyber risk extends to our supply chain compromised their own products • There are disaster recovery and incident • Further, we are higher risk management plans in place for high-risk as a result of being a media areas of the business company and operating in This risk has increased since last year as our a public environment technology becomes more sophisticated. Reputation An event with public • WIth our Broadcasting • ITV has a crisis management policy and interest causes signifcant and Studios businesses, the process in place and is increasing emphasis StatementsFinancial reputational and brand Company operates in a public on its development and application damage. environment and is exposed • ITV proactively manages its broadcast chain to the risk of a high-profle partners and suppliers to ensure the risk incident, for example through of incidents and regulatory breaches our association with the is minimised actions of our talent

There is a major health and • As ITV Studios expands, there • ITV has a central health and safety team safety incident that is a continued increase in the and health and safety policies and procedures results in a signifcant number of production hours, in place, with appropriate training for loss of human life on and an increased potential employees where required a production. to produce certain types of • We have developed our safety management programming that have higher approach to align with our studios label inherent risks model to ensure ownership of risk in the appropriate business areas. To reflect this,

we are developing our training programme information Additional initially through Leading Risk (see case study on page 79) • We are continually reviewing our processes and overall approach to production safety (see case study on page 78) and have built a comprehensive online resource to provide easily accessible production focused health and safety advice and support • We are developing our reporting tools to provide increased oversight of risks across the Studios division This risk has increased since last year as ITV undertakes more complex productions.

55 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Risks and Uncertainties continued

Link to Risk Potential Risk Key Drivers Mitigating Factors and Risk Direction business direction Regulation There is a signifcant • ITV could be affected if • ITV regularly communicates with or unexpected change there is a change in UK media appropriate groups and its legal panel in UK regulation or regulation or legislation; for and Ofcom to monitor potential policy, legislation. example, if there is a change legal and regulatory developments in advertising restrictions in key categories

Impact of exiting While the potential changes and The likelihood or extent of any impact is the European Union the impact of any such changes currently unknown, however, we continue The political and will remain unknown for a while, to work closely with industry bodies and economic uncertainty ITV could, for example, be discuss key issues with key UK Government arising from the UK’s affected by: departments referendum vote to • Changes to EU broadcasting We will closely monitor negotiations with leave the EU could legislation and/or rules around the EU, as well as emerging non-EU worldwide result in continued macro EU market access, for example trade deals, and will evaluate any potential uncertainty. This may if the UK does not retain areas of risk impact the overall health classifcation of UK content of the UK television as European. This could advertising market, with potentially reduce the scale corporate and consumer of the market opportunity confdence both for UK content in the EU weakening since the outcome. • Restrictions to the free movement of our staff Further, there is impacting our operating model considerable uncertainty and ability to attract and retain regarding the likely terms the best talent of the post Brexit trading • New non-EU worldwide trade arrangement between deals that could, for example, the UK and the EU, which see pressure to weaken is expected to continue requirements for UK for the foreseeable broadcasters to purchase future. original content made in the UK/EU or for the UK to broaden exceptions from intellectual property protection. This could potentially reduce the scale of the market opportunity for our content in the UK. • Changes in taxation, free movement of capital and transfer pricing regulation

56 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Risks and Uncertainties Strategic Report Broadcast & Online – building our Risk direction (after mitigation) since 2016 free-to-air, online and pay business Increased risk

Risk stayed the same ITV Studios – growing an international content and distribution business Reduced risk

Link to Risk Potential Risk Key Drivers Mitigating Factors and Risk Direction business direction Financial ITV loses its credit status • There is a repeat of the • The business is cash generative and working or lines of funding with 2008/09 fnancial crisis as capital management remains a key focus existing lenders or there a result of a major bank • ITV has a balance sheet policy to maintain is an event that impacts collapse or there is a similar adjusted net debt below 1.5x adjusted EBITDA fnancial arrangements/ fnancial outcome as a result and have available liquidity headroom availability of credit. of an unexpected world event of at least £250 million Governance • ITV has a £630 million Revolving Credit Facility with a number of core relationship banks and £300 million of fnancial covenant free facilities • The relatively low levels of ITV debt and our two investment grade ratings mean ITV continues to have good access to both bank and bond fnancing

There is a major collapse • As a result of macroeconomic • There is regular communication between in investment values or changes, there can be material ITV and the pension trustees a material change in movements in the Group’s • The pension scheme’s assets are invested liabilities leading to an defned beneft pension in a diversifed portfolio, with a signifcant impact on the pension scheme amount of the fund held in bonds scheme defcit. • For example, the Bank of • ITV has worked with the pension trustees England’s monetary policy may to limit the potential defcit by a series of impact gilt yields and corporate asset-backed arrangements. Further, it has StatementsFinancial bonds rates, increasing the taken some mortality risk out of the scheme scheme’s liabilities with a longevity swap and hedged a portion • Or if there is an unexpected of inflation and interest rate variability world event that impacts property values and/or impacts share prices Additional information Additional

57 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Strategic Report

Viability Statement What is the process ITV follows? At an annual strategy meeting the Board assesses ITV’s prospects and risks. Amongst other topics, the Board reviews the fve year fnancial plan, which is based on our strategic priorities. Pages 18 to 19 of the Annual Report provide detail of ITV’s prospects in the Strategy and Business Model section.

What is the assessment period for viability? In its assessment of viability, the Board reviewed the planning horizon and is of the view that a three year period to 31 December 2020 continues to be most appropriate. The factors the Board considered in adopting this timeframe were as follows: • Visibility over ITV’s broadcast advertising business is relatively short term, as advertising remains cyclical and closely linked to the UK economic growth impacted by Brexit and the uncertain UK macroeconomic climate • The commissioning process and life cycle of programming gives the Studios division more medium term outlook. However, while non-returning brands are replaced with new commissions, over time there is less visibility as programmes can experience changes in viewer demand or come to a natural expiration • Technology in the media industry continues to change the demand for content and also how it is consumed • Pension funding, which is one of ITV’s key funding obligations, is also agreed triennially with the Trustees of the pension scheme • ITV’s business model does not necessitate investment in large capital projects that would require a longer-term horizon assessment or returns

Assessment of viability When considering the longer term viability of ITV, the Board reviewed each of ITV’s principal risks and, taking into account current operational and fnancial performance, has in particular analysed the impact of:

Scenario modelled Link to principal risks (pages 52 to 57)

Scenario 1: There is a major decline in advertising revenues The Broadcast division experiencing a signifcant and ITV does not build suffcient non-NAR and sharp downturn, similar to the 2008/09 revenue streams to mitigate the fnancial fnancial crisis, with advertising revenues impact of this decline. declining for two years followed by a year of flat revenue. This scenario could be regarded as cautious as recessions in the advertising market have historically not exceeded a two-year period and showed growth following that period.

Scenario 2: ITV fails to create and own a suffcient A number of key programme brands within the number of hit programmes/formats across its Studios division are not recommissioned. While international portfolio of content companies. the scheduling decisions of commissioners are made in advance, a number of key shows could come to an end at the same time.

58 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Risks and Uncertainties Strategic Report

In line with prior years, the Board has considered a scenario involving changes in pension funding obligations. However, while the fnal actuarial valuation as at 1 January 2017 has not been agreed, the Board does not anticipate any material changes in funding obligations in the three year period under assessment. The Board will continue to monitor the risk, as the next valuation as at 1 January 2020 could have an impact on the periods assessed in future viability statements.

Further, the impact of the London Property project on the Group’s viability was Governance considered. Due to the medium-term nature of the project, it is not currently anticipated to have a signifcant impact on liquidity in the period reviewed in this statement. The Board will continue to monitor the impact of the project as it progresses.

The viability review involved flexing the underlying strategic forecast for the above impacts, both individually and concurrently, and no specifc mitigations were assumed. The underlying strategic forecast assumed: business as usual capital spending; the ongoing availability of the fnancing facilities (as ITV remains within the covenants, current bank facilities are secured for more than three years and there are no major bond repayments due in this period); and the Group maintains the stated dividend policy.

The scenarios used are hypothetical but are considered appropriate to model risks that could impact the viability of the Group. In addition, there are options at the disposal of the Board to maintain liquidity and continue operations in the event of any of the scenarios arising, such as reducing M&A activity and non-essential capital expenditure as well as reviewing the Group’s dividend policy. Financial StatementsFinancial Viability statement Based on the results of this review, the Board has a reasonable expectation that ITV will be able to continue in operation and meet its liabilities as they fall due over the three year period ending 31 December 2020. The assessment has been made with reference to ITV’s strategy and the current position and prospects.

The Strategic Report was approved by the Board and signed on its behalf by:

Ian Griffths Chief Operating Offcer and Group Finance Director 28 February 2018 Additional information Additional

59 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Chairman’s Governance Statement

In the Governance section I am pleased to present our Corporate Governance Report for 2017. We believe that This section of the Annual Report contains corporate governance is essential to our success and as such the Board is committed to a statement from our Chairman and upholding the highest standards of governance and works closely with the executive team information about the Directors and in order to do so. We are engaged in considering the proposals for the revised UK Corporate Management Board. It explains our Governance Code (the “Code”) and will seek to ensure compliance with that Code in due governance structure and corporate course. This year has seen an increase in Board membership, which builds on our already governance compliance and includes diverse Board and brings additional experience, ensuring there is an appropriate balance reports from the Audit and Risk and of skills and knowledge. This current Board consists of a strong team with a wide range Remuneration Committees and the of experience across various industries and territories. Directors’ Report. Information on what we focused on in the year can be found on page 67.

Board composition Board experience Following the departure of Adam Crozier, we announced in July of last year the appointment of Dame Carolyn McCall as Chief Executive. I am very pleased to welcome Sector experience Carolyn, who with her track record in media, experience of international operations, clear strategic acumen and strong record of delivering value to shareholders will help to continue Media 40% Finance 60% to build on the success of ITV. The decision to appoint Carolyn was taken after a rigorous selection process. More detail can be found on page 68.

The Board is mindful of the need to refresh its membership at appropriate intervals and after more than nine years on the board Andy Haste and John Ormerod will step down following the AGM in May. The Board agreed last year that Margaret Ewing would be the best candidate to succeed John as Chair of the Audit and Risk Committee. Salman Amin was also appointed during the year and has been a great addition to the Board. More details Advertising & on our approach to Board diversity can be found on page 69. Marketing 30% Retail 40% Directors’ other commitments are kept under review to ensure that they have suffcient time to dedicate to our business. Details of appointment dates and length of tenure for each director can be found on page 68. All Directors are required by the Company’s Articles of Association to be elected by shareholders at the frst AGM following their appointment by the Board. Subsequently, all Directors are subject to annual re-election by shareholders as recommended by the Code.

International experience

The Board is mindful of the need to refresh its membership at appropriate intervals.”

60 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Chairman’s Governance Statement Strategic Report

Board induction and evaluation Culture We believe that a comprehensive induction programme is important for all of our new Board members as well as a programme of continuing evaluation for the Board to assess Q What is ITV’s culture? its effectiveness. Full details of our evaluation and induction processes in the year are A ITV believes in an open and set out on page 69. collaborative culture across all areas of the business. At its core, ITV puts Stakeholder engagement

trust and an open and honest working Our stakeholders are very important to us and we remain committed to maintaining Governance environment for all as its most regular open dialogue and effective communication with them. We believe that continued important values. engagement is highly benefcial to all parties as it helps to build a greater understanding of their views, opinions and concerns. Further information on how we engage with our Q How does the Board engage with stakeholders can be found on page 71. the corporate culture? A The Board places a high importance Compliance with the UK Corporate Governance Code on the value of corporate culture ITV is required to report on how it has complied with the principles of governance set out within ITV and the role it provides in in the Code. The Board considers that during 2017 the Company has complied with the the development and retention of provisions of the Code but notes the following: employees as well as ITV’s external reputation. As mentioned, openness • Provision B.7.1 – Independence and communication are key at ITV and John Ormerod has served on the Board for more than nine years. The Board believes he as such it is imperative that the Board remains independent and as explained last year, the Board agreed that he should remain is visible throughout the organisation. as a Director until a successor as Chair of the Audit and Risk Committee could be found. The Board participates in site visits to Margaret Ewing was appointed in October 2017 to fll this position. our different locations and is in regular

communication with senior executives StatementsFinancial • Provision A.2.1 – Separation of Chairman and CEO and other employees. Following Adam Crozier’s departure, the Board agreed that I would step up as Q How is the corporate culture Executive Chairman from July 2017 until a new Chief Executive joined the business. embedded across the organisation? Dame Carolyn McCall was appointed to the Board in January 2018 to fll this position. A We seek to instill the ‘One ITV’ The Board notes that this was not compliant with the Code. way of working our global network of Ambassadors to enhance communication Further information on corporate governance and a schedule setting out how we comply and information sharing across all levels with the Code can be found on our website. of the business. The Board considers and acts upon feedback from employee www.itvplc.com/investors/governance engagement surveys. We also aim for our senior executives and our Board A copy of the Code is available on the FRC website. members to be as visible as possible and use open plan offce space to encourage www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance openness and collaboration. Our London property strategy is a big step to achieve Looking ahead

a more coherent and joined-up business. It has been a year of change for ITV and we enter 2018 with a new Chief Executive who information Additional the Board strongly believes will put ITV in the best position to face the challenges of Q What is next for ITV? a competitive and rapidly changing industry. A We believe that an effective and well embedded corporate culture helps create a successful business. We will continue to focus on building a strong Sir Peter Bazalgette corporate culture and will keep this Chairman under consideration as part of our 28 February 2018 strategy refresh.

61 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Board of Directors

1 Ian Griffiths 3 Sir Peter Bazalgette 5 John Ormerod 7 Andy Haste Chief Operating Offcer and Chairman Non-executive Director, Chairman Senior Independent Director Group Finance Director of the Audit and Risk Committee N R N A G Appointed: June 2013 N A R Appointed: August 2008 Appointed: September 2008 Key areas of prior experience: Appointed: January 2008 Key areas of prior experience: Key areas of prior experience: Media consultant, digital media Key areas of prior experience: International and emerging Corporate fnance and fnancial investor and former television Finance, developing strategy markets, change management, restructuring. producer. and growth. restructuring and business Current external appointments: Current external appointments: Current external appointments: turnaround. Non-executive Director of Member of Advisory Board for Non-executive Director, Current external appointments: DS Smith Plc. YouGov plc and Bartle Bogle Hegarty. Constellium NV, Gemalto NV. Chairman, Wonga Group Limited; Previous experience: Group Finance Previous experience: President, Previous experience: Non-executive Senior Independent Deputy Chairman Director and other senior fnance the Royal Television Society; Chairman, First Names Group of the Council of Lloyd’s. roles within Emap plc; Manager Chairman, the Arts Council Limited, Tribal Group plc, Merlin Previous experience: Group Chief in audit and corporate fnance of England; Non-executive Director of Claims Service Holdings Limited; Executive, RSA Insurance Group plc; at Ernst & Young. Nutopia; Non-executive Director and Senior Independent Director, Misys Chief Executive, AXA Sun Life plc; Chairman of the Remuneration plc; Trustee, The Design Museum, Director, AXA UK plc (life and 2 Carolyn McCall Committee and member of the Audit The Roundhouse Trust; Non-executive pensions); President and Chief Chief Executive Committee of YouGov plc; Non- Director and Chairman of Audit Executive Offcer of GE Capital G executive Director of Mirriad Ltd, Committee of Computacenter plc; Global Consumer Finance UK, Appointed: January 2018 DCMS, Rightster, Critical Information Non-executive Director, Negative Western Europe and Eastern Europe; Key areas of prior experience: Group plc and Channel Four Television Equity Protection Holdings Limited, President, the US Consumer Credit Strategy and change management, Corp; Trustee of DebateMate; Millen Group Limited, BMS Associated Business and Senior Vice President media, retail and airline industries. Chairman of the ENO and Endemol Limited; Member of Audit and Retail and Head of the US Consumer Current external appointments: UK; Deputy Chairman and Director of Risk Control Committees of HBOS plc; Loan Products Division of National Non-executive Director, Burberry the National Film and Television Chairman, Wallbrook Group; Westminster Bank. Group plc and Department of School; Adviser to Sony Music’s Chairman of the Audit Committee for 8 Mary Harris Business, Energy and Industrial television division; Chairman of the Transport for London; Practice Senior Non-executive Director, Strategy. Director, Corporate Board UK production business of Sony Partner, Deloitte & Touche; Regional Chair of the Remuneration of Royal Academy of Arts. Pictures Television Inc.; Chief Creative Managing Partner, Arthur Andersen. Committee Previous experience: Chief Offcer at Endemol Group BV and 6 Salman Amin Executive of easyJet plc, Guardian Endemol Entertainment UK Limited. N A R Media Group plc, Guardian News and Non-executive Director Appointed: July 2014 4 Margaret Ewing Media plc; Non-executive Director N Key areas of prior experience: Non-executive Director of Lloyds TSB Limited, Tesco plc, Appointed: January 2017 Business management consulting, N A New Look plc; Director of French Key areas of prior experience: sales and marketing, mergers and Chamber of Commerce; Chair, Appointed: October 2017 General management, marketing, acquisitions, media, television and Opportunity Now; President, Key areas of prior experience: advertising and media planning. interactive media investments Women in Advertising and Financial accounting, corporate Current external appointments: and digital rights management. Communications London. fnance, mergers and integration, None. Current external appointments: strategic and corporate planning. Previous experience: Chief Non-executive Director and Chair Current external appointments: Operating Offcer, Global Commercial of the Remuneration Committee, Non-executive Director and member Division and Chief Operating Offcer, Reckitt Benckiser Group PLC; Member of the Audit and Risk Committee of North America of SC Johnson and Son of the supervisory board of Unibail ConvaTec Group plc; Trustee, the Inc; various positions at Pepsico Rodamco SE. Board of Great Ormond Street including: Chief Operating Offcer, Previous experience: Non-executive Hospital Children’s Charity; External Purchase; President, PepsiCo UK and Director, J. Sainsbury plc; Member of member of the Audit Committee, Ireland; other marketing and various the supervisory board, TNT Express The Lawn Tennis Association. positions within brand management, NV, TNT NV, Scotch and Soda NV Previous experience: Executive personal care, paper products and and Irdeto BV; Partner, McKinsey & member of the Board, Executive food in the US, Saudi Arabia, Germany Company, Amsterdam; various Committee member, Managing and Switzerland at Procter & Gamble. positions worldwide with McKinsey Partner, Vice Chairman and Partner & Company, Maxwell Entertainment of Deloitte LLP. External member of Group, Pepsi Cola Beverages and the Audit and Risk Committee John Goldman Sachs & Co. Lewis Partnership. Non-executive Director, Standard Chartered plc; Member of the Financial Reporting Review Panel; Chairman of the Audit Committee, Confederation of British Committee membership Industry; Non-executive Director and G General Purpose Chair of the Audit Committee, A Audit and Risk Whitbread plc; Group Chief Financial N Nomination Offcer, BAA plc; Group Finance R Remuneration Director, Trinity Mirror.

Full biographies can be found on our website: www.itvplc.com/about board-of-directors

62 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Board of Directors Strategic Report

9 Anna Manz Non-executive Director N A R Appointed: February 2016 Key areas of prior experience: Strategy and fnance and fnancial planning. Current external appointments: Chief Financial Offcer, Johnson Matthey plc. Previous experience: Various appointments at Diageo plc including: Group Strategy Director,

Regional Finance Director Asia Governance Pacifc, Group Treasurer, Finance Director Global Marketing, Sales and Innovation; other fnance roles at Quest International, Unilever and ICI. 1 2 3 10 Roger Faxon Non-executive Director N R Appointed: October 2012 Key areas of prior experience: Broad commercial, digital and media rights experience, development of business strategy and fnance. Current external appointments: Chairman, Mirriad Advertising Ltd; Non-executive Director, Pandora Media Inc; Director, The John Hopkins University.

Previous experience: Director, EMI StatementsFinancial Group Global Limited and EMI Group plc; Chief Executive Offcer of EMI Group Limited; Chairman and CEO of EMI Music Publishing; Director, the Songwriters Hall of Fame; other appointments at the American Society of Composers and Authors and Lancit Media Entertainment Ltd in the US; Chairman of VIVA Television in Germany and Channel V Networks in Asia. 4 5 6 Additional information Additional

7 8 9 10

63 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Management Board

1 Julian Bellamy 3 Carolyn McCall 7 Kelly Williams 9 Andrew Garard Managing Director, ITV Studios Chief Executive Managing Director, Commercial Group Legal Director and Appointed: February 2016 Appointed: January 2018 Appointed: December 2014 Company Secretary Experience: Julian joined ITV in 2014 Experience: Full biography Experience: Kelly joined ITV in August Appointed: November 2007 as Managing Director of the Studios on page 62. 2011 as Group Commercial Director Experience: Andrew joined ITV business in the UK and was promoted and joined the Management Board as Group Legal Director in 2007 4 Kevin Lygo to Managing Director of ITV Studios as Managing Director, Commercial in and took on the additional role Director of Television in February 2016. Julian’s previous December 2014. He is also Chairman of Company Secretary in 2009. Appointed: August 2010 roles included Creative Director and of Thinkbox, sits on the BARB He is also on the board of ITN, Experience: Kevin joined ITV as Head of Commissioning at Discovery Strategy board and is Vice Chairman is responsible for content Managing Director, ITV Studios Networks International, Head of of the Advertising Association. management and the ITV archive, in 2010 and became Director of Programming at Channel 4 and prior Before joining ITV, Kelly was the Group Secretariat and corporate Television in February 2016. Kevin’s to that he ran BBC3 and E4. He also Sales Director at Channel 5 and prior responsibility. Previously, Andrew previous roles included Director of spent time as Channel 4’s Head of to that held various positions at was a partner in the corporate Television and Content at Channel 4, Factual Entertainment and was a UKTV, Sky and Thames Television. department of LeBoeuf Lamb’s Director of Programmes at Channel 5 commissioning editor of Channel 4 London offce. Prior to this, Andrew and a number of positions at the 8 Julian Ashworth News and Current Affairs. was Group General Counsel and BBC, including Head of Independent Director of Strategy and Company Secretary at Cable & 2 David Osborn Commissioning for Entertainment. Direct to Consumer Wireless plc where he was a member Group HR Director Appointed: February 2018 5 Rufus Radcliffe of the Group Executive responsible Appointed: October 2014 Experience: Julian recently joined Group Marketing and for Group Legal. Prior to that, he Experience: David joined ITV as ITV to lead the strategy review and Research Director was Global Head of Legal and Deputy the HR Director for ITV Studios in development of the ITV Direct to Appointed: April 2017 General Counsel for Reuters Group May 2011, and was appointed to the Consumer business. Before joining Experience: Rufus joined ITV in plc in the UK, and before that Management Board in October 2014 ITV, Julian was Global Director of August 2011 and was promoted General Counsel, Asia. as Group HR Director, responsible Policy Strategy at BT and prior to that to the Management Board in 2017. for delivering the Group’s People held various strategy, and business He also sits on the Freeview Board Strategy. David gained previous development and commercial roles and is a Fellow of the Marketing experience in both the UK and at RELX plc, Centrica plc and Bain Society. Before joining ITV, Rufus internationally while working in & Company. He has also served as spent 10 years at Channel 4, and a variety of businesses including a member of the UK Government’s prior to that held various positions EMI Music, Vodafone, Visa Europe Digital Economy Council, a board at McCann Erickson and JWT. and Marks & Spencer. member of TECHUK, the British 6 Ian Griffiths Screen Advisory Council, the Royal Chief Operating Offcer and Taskforce against cyberbullying Group Finance Director and a member of the UK Council Appointed: September 2008 for Child Internet Safety. Experience: Full biography on page 62.

Full biographies can be found on our website: www.itvplc.com/about/board-of-directors

64 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Management Board Strategic Report Governance

1 2 3 Financial StatementsFinancial

4 5 6 Additional information Additional

7 8 9

65 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Corporate Governance

Our Governance structure

Board

Audit and Risk Committee Disclosure Committee Nomination Committee See the Audit and Risk Committee Report COO & CFO and other senior managers Chairman and Non-executive Directors on page 72. Meets to ensure compliance with the Meets to review the structure, size, and continuing obligations under the Disclosure composition of the Board, including skills, Guidance and Transparency Rules (DTRs). knowledge and experience. Identifes and nominates for Board approval candidates to fll Board vacancies, and considers Remuneration Committee succession planning for Directors and See the Remuneration Report on page 82. other Senior Executives. Considers and Tax and Treasury Committee reviews any conflicts of interest that may COO & CFO and other senior managers be reported by the Directors. Meets to consider and approve tax and treasury related matters in respect of General Purpose Committee corporate transactions or other activities. Monitors compliance with tax and treasury Executive Directors related policies and procedures. Meets as required to conduct business within clearly defned limits set by the Board.

Matters reserved for the Board and Committee terms of reference are available on our website: www.itvplc.com/investors/governance

Management Board Meets to consider, approve and implement strategy and operational plans, monitors operating and fnancial performance, and assesses and manages risk.

ITV Studios Board ITV Broadcast Board Operational Risk Business Resilience Executive directors and Executive Directors and Steering Group Response Team senior executives of divisional senior executives of divisional Manages and considers a Acts as tactical response business. Meets to consider business. Meets to consider number of existing and emerging team in the event of an and approve operational and approve operational operational risks and ensures incident, supporting the matters, and assesses and matters, and assesses and that the business addresses the Management Board in manages risk in relation manages risk in relation controls and mitigations dealing with a crisis. Develops to the Studios business. to the Broadcast business. appropriately including in business area response plans, relation to: health & safety, child testing programmes and protection, business resilience, incident reporting. data protection, insider dealing, whistleblowing, anti-bribery & corruption, information security, fraud, technology and cyber risk.

Programme Compliance Corporate Advisory Group Responsibility Board Manages and considers issues Manages the direction and risks in relation to the and delivery of ITV’s programme compliance responsibility strategy framework, the interactive including in relation to diversity business and regulation. and inclusion, environment, communities and social causes. See page 20.

66 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Corporate Governance Strategic Report

Board and Committee meetings The number of meetings held during the year and attendance of Directors is set out in the table on page 68. The Board agrees an annual schedule of matters it wishes to consider at each of its meetings and those of its Committees. The schedule ensures that all relevant matters are considered and receive appropriate attention. Meetings are normally held at one of the London sites or one of the regional or international offces. Board meetings are structured around the following areas:

• Operational and functional updates

• Financial updates Governance • Strategy • Progress against strategy • Business plan and performance against plan • Risk management framework, key risk areas and risk appetite • Other reporting and items for approval

Senior executives are regularly invited to attend meetings for specifc items. In addition to formal Board and Committee meetings, meetings take place between:

• Board members and Management Board members • Chairman and Non-executive Directors • Individual Non-executive Directors meeting with members of senior managers management • Senior Independent Director and Non-executive Directors (without the Chairman present) Financial StatementsFinancial Key matters discussed in 2017 and focus for 2018:

Operational matters Developments ITV brand Risk • Plans for redevelopment of • The ITV Hub and ITV Hub+ • Changing viewers’ perception • Cyber security London site • Targeted advertising of ITV • Data protection and GDPR • Cost savings • Airtime sales modernisation • Marketing for lighter viewers • Technology resilience • Mergers and acquisitions • International production • 16–34 year old viewing • Daytime studio migration • Budget

Other important matters Areas of focus for 2018 • Britbox US launch • Strategic refresh • Succession planning • Consumer data • Integrated producer broadcaster • Future of advertising • Acquisition integration • Impact of the EU referendum vote • Gender pay gap reporting • SVOD • Drama development Additional information Additional

67 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Corporate Governance continued

Board and Committee membership and attendance Board and Committee membership and attendance at scheduled meetings in 2017 are set out below.

Attendance at meetings Date of Date appointment elected by Nomination Remuneration Audit and Risk Status Notes to the Board shareholders Board Committee Committee Committee Peter Bazalgette Chairman 1 1 June 2013 14 May 2014 9/9 1/1 6/6 – Salman Amin Independent 2 9 January 2017 10 May 2017 9/9 1/1 – – Adam Crozier Executive 3,6 26 April 2010 7 May 2010 3/9 – – – Margaret Ewing Independent 4 31 October 2017 10 May 2018 2/9 1/1 – 1/6 Roger Faxon Independent 5 31 October 2012 15 May 2013 9/9 1/1 4/6 – Ian Griffths Executive 6 9 September 2008 14 May 2009 9/9 – – – Mary Harris Independent 28 July 2014 14 May 2015 9/9 1/1 6/6 6/6 Andy Haste Independent SID 7 11 August 2008 14 May 2009 9/9 1/1 2/6 6/6 Anna Manz Independent 5 1 February 2016 12 May 2016 9/9 1/1 4/6 6/6 John Ormerod Independent 8 18 January 2008 15 May 2008 8/9 1/1 6/6 6/6

1. Peter Bazalgette was appointed as Executive Chairman with effect from 1 July 2017 until 8 January 2018. 2. Salman Amin was appointed to the Board and Nomination Committee on 9 January 2017. 3. Adam Crozier stepped down as Chief Executive on 3 May 2017. 4. Margaret Ewing was appointed to the Board, Audit and Risk Committee and Nomination Committee with effect from 31 October 2017. 5. Roger Faxon and Anna Manz were appointed to the Remuneration Committee with effect from 1 May 2017. 6. Executive Directors have rolling service contracts that provide for 12 months’ notice by either party. 7. Andy Haste stepped down as a member of the Remuneration Committee with effect from 10 May 2017. 8. John Ormerod was unable to attend the Board meeting in September due to a prior commitment.

Succession planning and diversity Succession planning The Board recognises that effective succession planning is key to the Company’s ability to achieve its strategic objectives and is also integral to maintaining an effective Board. The Board has in place a framework which it reviews regularly to ensure that: • The Board is refreshed appropriately in order to encourage new ideas • There is a diverse Board with a wide range of skills and experience • Board tenure is appropriate and Board members remain independent

During the year the Board has undergone some changes as set out below:

Chief Executive: In May 2017 we announced that Adam Crozier would leave ITV in June 2017. Following this, we commenced the recruitment process for a successor. As part of its succession planning process, the Board had already discussed the key skills, experience and other requirements of the role. They established a small committee comprised of Peter Bazalgette, Andy Haste, Roger Faxon and Mary Harris to manage the process. The Board engaged Spencer Stuart to assist and provided them with a clear brief. Throughout the process, the Committee met regularly and gave careful consideration to the candidates proposed. Face to face interviews were held and after much debate a strong shortlist was agreed who were asked to meet with all members of the Board. The Board unanimously agreed that Carolyn McCall should be asked to join ITV as Chief Executive, which we announced in July 2017. Carolyn joined the business on 8 January 2018 and in the interim period the Board agreed that Sir Peter Bazalgette should take the role of Executive Chairman and Ian Griffths was promoted to COO & CFO.

Non-executive Directors: During the year, we welcomed two new Non-executive Directors: Salman Amin with effect from 9 January 2017 and Margaret Ewing with effect from 31 October 2017. Details of the recruitment process for Salman Amin are set out in the Annual Report and Accounts for 2016. When considering the recruitment of Margaret Ewing, the Board was mindful of the need to ensure succession planning for the Chairman of the Audit and Risk Committee as John Ormerod, the current Chairman of that Committee, is stepping down from the Board in May 2018, and wanted to ensure an appropriate handover period. The Board engaged Zygos to assist with the recruitment of Margaret Ewing following a similar process as that set out above for the Chief Executive.

Both John Ormerod and Andy Haste will step down from the Board following the AGM in May 2018 and the Board is considering the current diversity of the Board with a view to considering further appointments if appropriate.

Committees: The Board also reviewed Committee membership and during 2017 Mary Harris succeeded Andy Haste as Chair of the Remuneration Committee. In addition, Anna Manz and Roger Faxon joined the Remuneration Committee.

68 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Corporate Governance Strategic Report

Diversity Board tenure It is our policy to retain a talented and diverse but relatively small board bringing a balance of (as at date of publication) in-depth commercial and creative experience. The Board does not have a separate diversity policy but instead relies on the ITV Equal Opportunities policy. ITV encourages diversity 0–2 years 3 throughout the business and recognises a range of characteristics. More information on this 2–5 years 3 can be found on pages 20 and 99. We believe that the ITV Board is a diverse group in terms of 5–9 years 3 experience, age, gender and educational and professional background. We consider diversity More than as part of our succession planning process but recognise it is important to ensure that the Governance 9 years 1 most appropriate person is chosen for the relevant position.

Induction, training and development All Directors who join ITV receive a comprehensive induction. It is intended to provide Board gender diversity the Director with an overview of the industry and important key themes for the Company. (as at date of publication) It is also used to familiarise each Director with the different areas of the business and employees within the Company. During the year, Margaret Ewing and Salman Amin were appointed as Non-executive Directors and Carolyn McCall as Chief Executive. Margaret joined as a successor to the Audit and Risk Committee Chair and as such her induction 40% 60% was tailored accordingly. More details can be found below.

During a Directors’ period of appointment, they are continually updated on the Group’s different business areas and the competitive and regulatory environment in which they operate. This is done through: • Updates and papers which cover changes affecting the Group and the market in which it operates and meetings with senior executives across the Group and key advisers; Financial StatementsFinancial • Regular updates on changes to the legal and governance requirements of the Group and in relation to their own position as Directors • Presentations given at Board and Committee meetings on business matters and technical update sessions from external advisors where appropriate Executive Directors may accept external appointments as Non-executive Directors of other companies and retain any fees paid to them. Further details of external positions held by Directors can be found on page 96.

General Board Induction

All Directors Executive Non-executive • Operational overview • Visits to key sites • Meetings with shareholders • Financial review • Build relationship with Chairman (as appropriate) • Strategic overview and Management Board members including • Meetings with internal and external • Director’s duties and responsibilities the Senior Leadership Team advisers (as appropriate)

• Governance structure • Meetings with senior executives information Additional • Review of previous minutes and • Meetings with shareholders meeting papers • Other key documents including strategy and budget • Meetings with other Board members

Customised Executive Director induction Customised Non-executive Director induction

Carolyn McCall Margaret Ewing • Visits to main hub sites, studios sets and regional news teams. • Health and safety • Meetings with shareholders • Tax and Treasury Committee and Operational Risk Steering Group • Meetings with Management Board members and divisional • Data Protection and GDPR’s impact on ITV board members • Visit to the shared service centre • Site visit to the new London offce • London property strategy update

69 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Corporate Governance continued

Board evaluation Terms of engagement for the External Non-executive Directors and job The Board undertakes an external evaluation every three years to review its effectiveness. descriptions for the Chairman, Chief The last external Board evaluation took place in 2016. Executive and Senior Independent Director are available on our website. Internal The work of the Board and its committees is reviewed annually. The evaluation takes the www.itvplc.com/investors/ form of a detailed questionnaire and interviews with the Board and Committee members governance eliciting feedback on a wide range of topics. In addition, input is sought from the Executive Directors, other relevant senior executives and external advisers. Results are then passed to the relevant Committee Chairman and a report of actions is submitted to the Board and Committees and actioned as appropriate. The table below indicates the important themes that were identifed for the Board from the exercise for 2017. Committee actions are set out on pages 73 and 85.

Actions for 2018

Composition • Ensure there is a broad range of experience and perspective on the Board, in particular recent media, technology and digital experience • Consider the successor for the Senior Independent Director when Andy Haste steps down from the Board.

Effectiveness • Review meeting structure to enhance productivity and effciency and allow for greater in depth discussions

Stakeholder engagement • Engage more regularly on wider stakeholder engagement • Spend more time understanding and visiting UK and international acquisitions

Board visit During 2017 a Board meeting was held in Manchester which included a visit to the Coronation Street set and a lunch with employees.

70 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Corporate Governance Strategic Report

Stakeholder engagement Investor profle The Board has a responsibility to create value for all its stakeholders and we believe it is vital The percentage of issued capital by type to engage and listen to their views. As one of the biggest national broadcasters in the UK, of holder is as follows: ITV has a wide range of stakeholders and more on how we engage with some of these different groups is detailed below: Investors: The Board attaches a high priority to effective communication with investors and has regular open dialogue with them. During the year meetings were routinely held with institutional investors to keep them updated on the Company’s performance against our Governance strategy. The Board is kept informed of any feedback from these meetings. Further details can be found in our ‘investor calendar’ below. Our AGM provides a forum for private shareholders to raise questions with the Board directly should they wish. They have ample opportunity to ask questions during the meeting and before and after the event. The Chairman and Senior Independent Director are always available to all shareholders. Employees: Engagement with employees is facilitated in a number of ways. We have Institutional shareholders 97.26% engagement surveys and Carolyn McCall has introduced weekly podcasts to keep employees Private shareholders 2.72% up to date with what she has been doing and to communicate important issues for ITV in an Other 0.02% effective and engaging way. In addition, a separate email has been set up for employees to ask Carolyn any questions they may have. Further details of what else we do around employee engagement can be found on page 100, including information on our annual roadshows. Viewers: ITV reaches a vast audience across the UK and the Board recognises the important role it plays for viewers. Viewers are able to tell us their thoughts directly via email or telephone with contact details provided on our website. They are also able to use our regulator Ofcom, to raise any concerns they may have. The Board has delegated the review of such issues to the Broadcast Board where a compliance report is received monthly detailing viewer or StatementsFinancial regulator concerns. Our dedicated viewer services team was awarded the Best Customer Services in Telecoms & Media for the seventh year running in 2017 and is on hand to resolve any technical issues or other questions our viewers may have. We now also provide bespoke support for all of our live Daytime shows, ITV Box Offce events, and the ITV Hub to enhance our viewer experience.

Our investor calendar

March May July September November • Full year results • Q1 Trading Update • Interim results • Interim results • Q3 Trading Update published and roadshow published published and roadshow in London published in London • JP Morgan conference roadshow in London • Barclays conference • Morgan Stanley information Additional • Citi Annual Media • Roadshow in the US in London TMT conference conference in London • European roadshows in Barcelona in Frankfurt and Milan • US roadshow

April June August October • Full year results • Bank of America Merrill • Interim results roadshow • US roadshow roadshow in London Lynch conference in in London and US London

71 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Audit and Risk Committee Report

In this report Dear Shareholder, The purpose of this report is to highlight areas that the Committee has reviewed On the following pages we set out the Audit and Risk Committee’s report for 2017, during the year. We report to shareholders which provides an overview of the areas considered by the Committee during the year. on the signifcant fnancial reporting issues and judgements made in connection with As expected, 2017 was more challenging than recent years for ITV. Economic uncertainty in the preparation of the Company’s fnancial particular associated with Brexit has resulted in lower UK advertising revenues and profts. statements. Also highlighted is how the However, the Committee has continued to ensure that judgements remain balanced. Committee has assisted the Board in reviewing the Company’s internal control During the year, ITV’s 2016 Annual Report and Accounts were included as part of a sample and risk environment. We explain what within the FRC thematic review of reporting on Alternative Performance Measures (APMs), the Committee has done to review the with the object of improving the quality of disclosures and identifying good practices. effectiveness of our internal and As a result of the review, our defnitions of APMs on page 34 have been clarifed to aid external auditors. shareholders’ understanding.

Our risk management process continues to develop. We have included some case studies on page 78 and 79 to highlight some initiatives that we have developed to consider the approach of our leadership teams in relation to risk on production and development of our three lines of defence model for the approach to health and safety in production.

During the year, we were delighted to welcome Margaret Ewing as a Non-executive Director and successor to me as Chair of the Audit and Risk Committee. I will be stepping down as a Director of the Company following the AGM in May 2018. Margaret brings very broad experience to the Committee, having been a senior partner at Deloitte, Group Finance Director of listed companies and is an experienced Non-executive Director.

Further information on corporate governance and a schedule setting out how we comply with the Code can be found on our website www.itvplc.com.

As mentioned in previous years, we seek to respond to shareholders’ expectations in our reporting. We reiterate that we welcome feedback from shareholders.

John Ormerod Chairman, Audit and Risk Committee 28 February 2018

We have engaged with the HSE, our insurers and unions on a new approach to health and safety risk on production, which ensures local ownership of risks.”

72 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Audit and Risk Committee Report Strategic Report

Who is on the Committee The current members are: The Committee is composed entirely • John Ormerod (Chairman) of independent Non-executive Directors. • Margaret Ewing (appointed 31 October 2017) • Mary Harris Full details of attendance at Committee • Andy Haste meetings can be found on the table on • Anna Manz page 68. The Committee members have between them a wide range of business and fnancial experience. The Committee considers that John Ormerod, Anna Manz and Margaret Ewing have recent and relevant fnancial experience for the purposes of the Code. Detailed biographies can be found on page 62 and 63.

Our role The main role of the Committee is to: Following each meeting, the Committee • Monitor the integrity of published fnancial information and review signifcant fnancial reporting

communicates its main discussion points issues and judgements Governance and fndings to the Board. • Provide advice to the Board on whether the Annual Report and Accounts are fair, balanced and understandable and the appropriateness of the going concern statement and the longer-term viability statement • Assist the Board to establish and articulate overall risk appetite and oversee and advise the Board on specifc strategic risk exposures and mitigations • Review the risk identifcation and assessment processes and undertake deep dives of high risk business areas or processes • Review the effectiveness of the internal control and risk management processes • Monitor and review the effectiveness and independence of the internal audit function • Provide advice to the Remuneration Committee on fnancial reporting matters and related judgements and risk management as they affect executive remuneration performance objectives, and • Review the quality and effectiveness of the external audit and the procedures and controls designed to ensure auditor independence. Financial StatementsFinancial Meetings

February • KPMG audit conclusions May July November • Year end fnancial and fndings • Half year fnancial • Half year report • Year end planning reporting issues and • APMs and exceptional reporting issues and • KPMG review conclusions • Full year fnancial judgements items judgements and fndings reporting issues and • Fair, balanced and • Compliance checklist • External audit strategy judgements understandable review • Draft Annual Report • Internal audit September • Distributable reserves of the Annual Report and Accounts independence and • Emerging and business planning and Accounts • Audit opinion evaluation specifc risk reviews • KPMG interim controls • Viability Statement review fndings verifcation • Review effectiveness of internal audit and the following year’s internal audit plan

At each meeting the Committee receives a report from the Head of Internal Audit on the progress of the work and internal audit fndings. information Additional In addition to the September ‘risk focused’ meeting, the Committee also considers specifc risk topics at meetings throughout the year.

In addition to Committee members the Chairman of the Board, Chief Executive, COO & CFO, Director of Group Finance, Group Legal Director, Head of Internal Audit, Director of Treasury, Director of Tax and the external audit partner regularly attend meetings. The Committee members meet regularly with the external auditor partner and Head of Internal Audit without executives present.

Annual review An annual review of the performance of the Committee was conducted for the year. In addition to feedback from members of the Committee, input was sought from the Chief Executive, COO & CFO, Director of Group Finance, members of the external and internal audit teams and the Chairman of the Board. Overall, the review concluded that the Committee is responding The Committee’s terms of reference appropriately to its terms of reference and will continue to develop its role. Priorities for the year can be accessed on our website. will include revisiting the internal audit model after the strategic refresh, and reviewing how the Committee engages with the risk functions to ensure they continue to meet the needs of the www.itvplc.com/investors/ business. The Committee will continue to review its membership to ensure the skills and experience governance align with the business as it develops.

73 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Audit and Risk Committee Report continued

Our focus in 2017 In planning its own agenda, and reviewing the audit plans of the internal and external auditors, the Committee takes account of signifcant issues and risks, both operational and fnancial, likely to have an impact on the Company’s fnancial statements and/or the Company’s execution and delivery of its strategy. The Committee also addresses specifc queries referred to it by the Board or Remuneration Committee.

During 2017, there were no topics where there was signifcant disagreement between management, the external auditor and the Committee, or unresolved issues that needed to be referred to the Board. Set out in the tables below is information on the key matters considered during the year.

Regular reviews and recurring transactions The following table summarises the regular reviews and activities undertaken by the Committee. Some of these areas may require the application of judgement by management or have underlying complexity.

Financial • Financial results announcements • Auditor engagement and fees External disclosure • Annual Report and Accounts • Auditor independence and objectivity audit and • Accounting judgements and estimates • Auditor Independence policy (including judgements • Developments in fnancial reporting non-audit fees) • Fair, balanced and understandable • Audit plans • Viability Statement (page 58) • Auditor performance and effectiveness • Going concern (page 120) • Key areas of judgement • Goodwill impairment (note 3.3, • Auditor management reports page 143) • Audit report • Tax (note 2.3, page 131) • Deal debt (see page 75) • Pension accounting (note 3.7, page 153) • Defcit fnancing (see below) • Revenue recognition (IFRS 15) (page 75) • Appropriateness of Alternative Performance Measures (page 78) • Litigation provisions (page 76)

Internal • Internal Audit independence • Principal risks and uncertainties Risk control and effectiveness and risk mitigations • Internal Audit plan • Effectiveness of the risk • Internal Audit report fndings management process and outcomes • Cyber security (page 77) • Effectiveness of internal controls • Business continuity • Post-acquisition reviews • Information security and GDPR • Monitoring acquisition earnouts • Technology modernisation (page 77) and related accounting • Health and safety • Whistleblowing process • Regulatory and programme • Material litigation compliance • Insurance programme • Bonus and share plan outcomes • Fraud controls • Anti-bribery controls Further information on our risk management framework can be found • Technology controls on pages 50 to 57 • Tax policy and controls • Treasury policy and reports • Tax and Treasury Committee review

74 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Audit and Risk Committee Report Strategic Report

Most of the topics mentioned above are relevant to all businesses. However, matters specifc to ITV include:

• Deal debt: this is where management estimates the over and under delivery of advertising value to agencies. The Committee reviews management’s approach and method of determining the provisions required for net under delivery. • Defcit fnancing: as part of our strategy to expand our content portfolio, signifcant investment in high-end drama is made. The Committee reviews the accounting implications, including revenue recognition and recoverability of the amounts invested.

Complex discrete transactions Governance The Group completed certain transactions during the period that were in line with strategy but could have been considered outside the normal course of business, as set out below. The Committee carefully reviewed these transactions to ensure that the judgements applied by management were reasonable and any complex accounting guidance followed correctly. During 2018, the Committee will also undertake post-acquisition reviews of signifcant investments in subsidiaries and associates over the past fve years.

Action taken by the Committee Area of focus Financial reporting and judgement Action taken by management and outcome

Revenue Talpa signed a four year deal The following points were noted: The Committee assessed to license The Voice of China management’s proposed recognition • A review of key documentation in January 2016 and credit accounting treatment for the between the insurers, ITV or the insurance was arranged. outstanding receivables and customer had been performed The format revenue for all credit insurance, considered by management four years was recognised in management’s report on the full in 2016 in line with our policy • Management had sought legal accounting treatment, had direct and accounting standards. counsel and opinion conversations with the legal As a result of the above actions, advisers and agreed with the StatementsFinancial In 2017, Talpa took back the management considered it assessment that: licence for The Voice of China appropriate that: due to a breach of agreement • The receivables should be by the customer resulting from • The outstanding receivables fully provided against non-payment of outstanding are fully impaired • No asset should be recognised invoices. ITV is pursuing talent • While management consider in relation to the credit for the amounts due and has the credit insurance policy insurance in 2017 submitted a claim under its credit remains effective, under IFRS • The disclosure, as proposed, insurance policy for the amounts no asset should be recognised is appropriate due from the customer. at present • Due to the timing difference KPMG also presented their view While management is confdent between the impairment of on the matter to the Committee, in the Group’s position that the the receivables in 2017 and noting consistent conclusions credit insurance policy remains the potential recognition of on the appropriate accounting effective, IFRS only permits the credit insurance policy treatment and disclosure. an asset relating to the credit recovery in a later period, this insurance to be recognised

should be highlighted within information Additional when the receipt of monies the fnancial statements is virtually certain. as an exceptional item. The judgement focused on: • Whether the £30 million of unpaid receivables held on the balance sheet are recoverable • Whether an asset should be recognised for the credit insurance Also see note 2.1 on page 124.

75 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Audit and Risk Committee Report continued

Action taken by the Committee Area of focus Financial reporting and judgement Action taken by management and outcome

London The Group has announced Management proposed that The Committee assessed properties its intention to redevelop incremental costs incurred across management’s proposed its South Bank site and build a the project over the medium treatment for the incremental new London offce. term, both capital and income costs, discussed the proposed statement related, should be presentation with management, The teams currently located ring-fenced and removed from and agreed that: in the South Bank site will be the underlying results i.e. any relocated to various sites on • The new London offce project one-off, dual running or dual a temporary basis while the is a signifcant one-off and temporary rent costs and capital South Bank site is redeveloped. not in the normal course expenditure on planning/new of business Over the course of the project build of HQ. incremental costs, both capital • It will require separate and income statement related, disclosure of the accounting will be incurred. implications within the fnancial statements and The judgement focused on in the Finance Review the presentation of these incremental costs, as exceptional, The Committee also agreed which arise solely as a result of with management that all other the project, within the Annual costs that were expected to Report and Accounts. be incurred regardless of the property decision, such as depreciation on studios or offce ft costs or service charges, will continue to be recognised as an operating expense within the underlying results.

Accounting for In 2016, due to evidence of Based on the current status of The Committee’s actions included: alleged breaches of contract the business, and taking into Gurney litigation • A review of the nature of and other fraudulent issues, the account the legal proceedings, the dispute and developments Group, having taken legal advice, management proposed that to date initiated legal proceedings for accounting purposes: against the minority owners, • Discussions with ITV’s general • Gurney should be treated as who continue to hold a 38.5% counsel and US legal advisers, if it had been wound down with membership interest in Gurney and no further results recognised Productions LLC (Gurney). • A review of management’s in the accounts, a provision proposed accounting treatment, These minority owners dispute recognised against the including provisions held the allegations and have counter- goodwill and against assets claimed for damages of at within Gurney The Committee agreed with least $150 million. The action • An acquisition-related management’s proposed is ongoing. liability should continue to accounting and presentation. Financial reporting and be maintained for potential judgement involved: ongoing contractual obligations • The accounting for the • No provision should be held ongoing operations of Gurney for the counter-claim against • The measurement of liabilities ITV as the Directors believe held for settlement of a this counter-claim is completely counter-claim, if any, and without merit, and for the cost of ongoing • A provision for legal costs, legal proceedings accounted as an exceptional cost, should be held for ongoing legal proceedings

76 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Audit and Risk Committee Report Strategic Report

Other matters In addition to fnancial reporting matters, the following topics were reviewed:

Area of focus Issue Action taken by Committee Outcome

Cyber security Cyber security is an increasing The Committee undertook a Completed and planned and simulation risk as our business develops detailed review of the cyber mitigations were reviewed exercise new revenue streams and direct security risks and strategy, and assessed. Governance to consumer propositions. including ongoing actions taken The Committee noted the by management around: progress that had been made • Embedding IT controls and will continue to monitor • Educating our colleagues and review mitigations. • Detection and response • Ownership across organisation and third parties The Committee also reviewed fndings from a cyber incident and phishing exercise conducted during the year.

Technology Legacy business systems continue The Committee reviewed the Completed and planned modernisation to be modernised to reduce a programme of work to modernise mitigations were reviewed

number of key business risks. legacy business systems, including: and assessed and the Committee StatementsFinancial will continue to keep this • Implementation of a cloud- under review. based fnancial and payroll system in the US • Development of a bespoke artiste payment system in the UK • Progress in the replacement of our airtime sales system

Tax The Criminal Finances Act 2017 The Committee monitored the Prevention procedures were introduced new Corporate actions taken by management to reviewed and assessed and the Offences of Failure to Prevent implement reasonable prevention Committee considered these to the Facilitation of Tax Evasion. procedures in line with published be adequate. The Committee will HMRC guidance. continue to receive updates.

Employment The issue of employment and The Committee received regular The Committee noted the information Additional status – worker status in the modern updates from management in progress and will continue ITV Studios economy has come under order to assess whether ITV is to monitor and review this area. production increasing scrutiny, particularly following best practice in how in the UK where employment it engages people, and adapting and tax law and practice are to change where appropriate. developing as a result. Employment status can be especially complex in television production, where freelancers are often used both behind and in front of camera.

77 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Audit and Risk Committee Report continued

Area of focus Issue Action taken by Committee Outcome

Alternative During 2017, ITV’s 2016 Annual The Committee discussed the FRC The FRC welcomed the planned Performance Report and Accounts were review points with management changes and these have been Measures selected within a sample of and agreed with management’s reflected in the Annual Report companies for the Financial recommendation to provide: and Accounts; refer to page 34. Reporting Council’s (FRC) • Further explanations of thematic review of reporting exceptional restructuring and relating to Alternative reorganisation costs in future Performance Measures. Annual Reports and Accounts, The FRC has asked that we point and to cease referring to these out that its review only covered costs as non-recurring the specifc disclosures relating to • Disclosure noting that the the thematic review and provided acquisition-related costs are no assurance that the report and not considered to be part of accounts were correct in all the core operations of the material respects. business and hence require highlighting in the accounts, Matters discussed with the FRC rather than referring to them focused on: as being non-recurring or • Why restructuring and one-off in nature reorganisation costs were determined to be non-recurring • How the company determined that acquisition-related expenses should be treated as operational exceptional costs

Treasury policy In 2016, after reviewing the This analysis was prepared and The Committee agreed with the annual Treasury report, the discussed at the Tax and Treasury proposal to amend the treasury Committee had requested further Committee. A recommendation policy on FX risk management analysis not just on what foreign for some amendments to the and recommended that the Board exchange (FX) exposures were treasury policy on FX risk approve the revised policy. being hedged, but also on what managed was reviewed by the was being left unhedged. Committee as part of the 2017 annual treasury report.

Anti-bribery and Following an internal audit review The Committee reviewed the The Committee agreed to keep corruption on the implementation of our result of the internal audit, the the agreed actions under review. anti-bribery and corruption recommendations and Management has put in place policies, actions to strengthen management’s response. a cross-business steering group implementation of the Group’s to help ensure that the agreed programme were recommended actions, such as risk assessments by Internal Audit. and enhanced local language guidance and training, are implemented consistently across the business.

Case study: new approach to health and safety – Emmerdale project We have been working on a project with Emmerdale trialling a refreshed approach to considering the effectiveness of health and safety on production. The project was in three stages – Discovery, Collaborative Analysis and Improvement – and required all aspects of the production team to focus on the day-to-day constraints and opportunities that they face identifying risks and potential mitigations. A team, nominated from the production, is in place, supported by the health and safety team, to deliver improvements. We have engaged with the HSE, our insurers and unions on this new approach, which supports risk management in a more effcient and effective way while ensuring local ownership of risks and accountability for the implementation of solutions.

78 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Audit and Risk Committee Report Strategic Report

Risk management and internal controls Risk management The Committee continued to consider the process for managing risk within the business and assisted the Board in relation to compliance with the Code. Further information on our risk management processes and details of our principal risks is included in the Strategic Report on pages 50 to 57.

Following on from earlier reviews by the Committee on health and safety processes in the business, we have developed some innovative Governance programmes to develop our approach to risk, moving away from a rules and process driven system to a cultural people driven solution, which we believe encourages a focus on prevention rather than reaction to failure. Further information is set out in the case studies below and on page 78.

In 2017, the Committee reviewed the management of pension risks in ITV’s defned beneft schemes, focusing on how management and pension trustees were managing risks relating to longevity, interest rates, inflation rates and investment strategy.

The Committee also reviewed the General Data Protection Regulation readiness plan for the business. This included detail of the governance model and the results of a detailed personal data audit. The Committee reviewed the workstream activities and plans and will keep this under review in 2018.

Internal controls The Board has overall responsibility for the Group’s systems of internal control and for regularly reviewing the effectiveness of those systems. The Committee assists the Board in reviewing the systems of internal control. The primary responsibility for the operation of these systems is delegated to management. Such systems can only provide reasonable and not absolute assurance against material misstatement or loss. Key control procedures are designed to manage rather than eliminate risk. Financial StatementsFinancial As part of our internal control process, the Group’s strategy is reviewed and approved by the Board. The Group performs an annual strategy review and a rolling fve year fnancial planning exercise, which are reviewed and approved by the Board. The fve year plan feeds into the annual budget cycle. The Executive Directors review formal forecasts, detailed budgets, strategies and action plans and the Board approves the overall Group budget as part of its normal responsibilities. The results of operating units are reported monthly to the Board, along with an update of the Group’s performance against strategic KPIs and cash. Actual results are compared with budget and forecasts, and key trends and variances are explained and analysed.

Leading Risk During the year, we introduced a Leading Risk programme to support our leadership Risk is clearly team in ITV Studios to consider risk effectively within its business area. The programme was developed with a focus on behaviour rather than process controls and to help build a signifcant a consistent language around risk. We partnered with the London School of Economics (LSE) on a research project based on this programme, which will provide us with consideration

a better understanding of risk decision- making to help us enhance a positive risk information Additional management culture. for ITV. We are The programme uses case studies to provide effective group conversations about how risk management works in reality, the impact of risks that are realised, the impact of examining how leadership behaviours on risk management and the importance of culture and voice to actively manage risk. Building on this, the programme seeks to provide an understanding risk managers think of risk drivers and risks that are accepted in the pursuit of goals. Output includes a risk appetite model that reflects the views of the leadership team, which can be articulated and feel about risk.” throughout the business. To date, nearly 200 of our leaders in the UK and US have gone through the programme with further roll-out during 2018 internationally. Dr Soane, LSE, explains: 200 of our leaders in the UK and “Risk is clearly a signifcant consideration for ITV. We are examining how risk managers US have gone through the think and feel about risk. We are also assessing risk managers’ views on how their teams make decisions about risk, and on the organisational climate. For example, do people programme with further roll- feel empowered and enabled to speak up if they see something they’re worried about? out during 2018 internationally. Do teams that have a strong shared understanding about decision processes.”

79 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Audit and Risk Committee Report continued

Assurance The Committee satisfes itself that internal controls are operating throughout the year principally based on a programme of internal audit reviews, reviews of the effectiveness of internal controls including fraud and anti-bribery, reviews of balance sheet checklists certifed by local management, ‘deep dive’ sessions with relevant management on the management of certain key risks and controls and through a suite of automated analytics that monitor fnancial transactions in our systems. In addition to the internal audit programme, there are a number of exception reports that cover transaction processing. For those subsidiaries not covered by exception reporting software, a monthly self-assessment takes place, which is subject to independent internal review.

Our auditors Internal auditor The Group’s internal audit activity is outsourced to Deloitte which reports directly to the Committee. The Committee continues to believe that outsourcing offers access to the wide range of skills and resources in the various geographies required and endorses its continuing use. The Committee keeps under review the internal audit relationship with Deloitte and the procedures to ensure appropriate independence of the internal audit function is maintained. The effectiveness of internal audit is assessed over the year using a number of measures that include (but are not limited to): • An evaluation of each audit assignment completed using feedback from the part of the business that has been audited, and • A high level annual review that is completed by obtaining feedback from senior management in each division

Prior to the start of the year, the Committee considered and approved the internal audit plan, which included audits across the Group as well as assurance over live projects. During the year, the Committee reviewed fndings from these internal audit reports, the actions taken to implement the recommendations made in the reports and the status of progress against previously agreed actions. All internal audit reports are available to the Committee.

External auditor The Group’s external auditor is KPMG. The table below summarises the process followed to manage the relationship and audit process.

Engagement Audit tendering and rotation Independence, objectivity Reappointment and fees

The Committee considers KPMG were appointed as auditor The Committee seeks to ensure During the year, the Committee carefully the scope of planned of ITV plc in December 2003 prior the objectivity and independence considered the performance work and the assessment of to the Company becoming the of our auditor through: and audit fees of our auditor, risk and materiality on which it parent company of the ITV Group and the level of non-audit work • Focus on the assignment and is based. In particular, through on 2 February 2004. In 2012 we undertaken, and recommended rotation of key personnel the Committee Chairman, undertook a competitive tender to the Board that a resolution for • The adequacy of audit resource the Committee participates and, applying the BIS guidance the reappointment of KPMG for • Policies in relation to non in the negotiation of the audit on the EU Audit rules. The next a further year as the Company’s audit work fee to ensure that there is an mandatory tender would be for auditor be proposed to appropriate balance between the 2023 fnancial year and the As a result of these strict shareholders at the AGM in May the scope of work and the cost of next mandatory rotation would guidelines the Committee 2017. The resolution was passed assurance. The Committee’s aim is be for the 2024 fnancial year. believes that non-audit services and KPMG was reappointed. to support a robust and effective do not have a direct or material The Committee continues to The Committee has audit and strong reporting lines effect on the audited fnancial monitor audit quality to ensure recommended the reappointment to the Committee. statements. A copy of our Auditor a robust and effective audit. of KPMG at the AGM on Independence policy is available The Committee agrees the 10 May 2018. We comply with the provisions on our website at www.itvplc.com. terms of engagement, audit of the Statutory Audit Services and non-audit fees and reviews Fees paid to KPMG for 2017 are for Large Companies Market progress and results throughout set out in note 2.1 on page 128. Investigation (Mandatory Use the year. of Competitive Tender and Audit We monitor relationships with Processes and Audit Committee other audit frms to ensure we Responsibilities) Order 2014. have suffcient choice for any future appointment.

80 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Audit and Risk Committee Report Strategic Report

External audit effectiveness and quality The Committee follows the review programme below to satisfy itself of external audit effectiveness and quality.

February May July November • Audit scope and materiality • Audit plan and strategy • Fees and independence • Auditor Independence policy • Independence and objectivity • Engagement • Audit Quality Review focus areas (reviewed every two years)

• Confrmation of work performed • Audit fees – fnal approval Governance and other signifcant risks • Reappointment

Audit quality is reviewed throughout the year and the Committee continues to use the Financial Reporting Council’s (FRC) Audit Quality Practice Aid to structure its review of audit quality. When making its assessment of audit quality, the factors the Committee focused on included:

External audit The audit strategy for the year addressed thematic concerns that the FRC had highlighted. quality reports

Auditor Reviewing the auditor’s understanding of business progress against the strategy and emerging industry interaction with themes, as well as the auditor’s discussion with management on key corporate transactions. management Financial StatementsFinancial Auditor’s own Enquired with regards to: view of • Audit methodology and its effective application to ITV effectiveness • Robustness of challenges and fndings on areas that require management judgement • Whether there had been an internal peer review of the ITV audit and what the fndings were, and • The experience of the senior members of the audit team

In its assessment of audit quality, the Committee also took into account:

• The detailed audit strategy for the year, including the coverage of emerging risks • Group materiality and component materiality • How the auditor communicated any key accounting judgements and conclusions, and • Feedback from management of the performance of the auditor

There were no signifcant fndings from the evaluation this year and the Committee considers the external audit to have been robust Additional information Additional and effective.

81 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Remuneration Report

In this report Dear Shareholder, The purpose of this report is to set out for shareholders the principles and policy we I am writing to update you on the work of the Committee during the year. Included within apply to remuneration for our Executive the Remuneration Report is our Annual Report on Remuneration, which will be subject Directors and to update you on how we to an advisory vote at our Annual General Meeting (AGM) on 10 May 2018. have applied these for the fnancial year ended 31 December 2017. The report also From the Committee’s perspective, 2017 was an extremely busy year. As you are aware, aims to demonstrate how our Remuneration after seven years, Adam Crozier stepped down from the Board. In this context, it was Policy aligns to our strategy, supports the a priority for the Board and our shareholders that ITV continued to perform strongly retention of the Executive Directors and over the period of transition and that Carolyn McCall, our new Chief Executive, inherited rewards them for strong performance. a business with positive momentum.

As described earlier in the Annual Report, the business has continued to make signifcant Committee governance page 85 progress despite external challenges. This has been achieved under the leadership of Ian Griffths, in his expanded role as COO & CFO, and Peter Bazalgette, who stepped into Remuneration Policy the role of Executive Chairman. summary page 86 Remuneration Policy The Committee made a number of key decisions during the year, which were made in application 2017 page 87 close consultation with both the Nomination Committee and the wider Board as a whole. By the end of the year, we are pleased to report that ITV had not only robustly navigated Remuneration Policy a challenging trading environment, but we now also have in place a highly talented and application 2018 page 91 experienced executive team for the future. Other disclosures page 92 The changes described above inevitably required the Committee to consider a number of ‘one-off’ matters outside of the normal course of business. During the year, we have consulted extensively with our major shareholders and kept all our shareholders informed regarding key decisions, all of which were fully disclosed to the market at the time.

Further information on the work of the Committee can also be found on page 85. This included consideration of the remuneration framework for the wider employee group when considering remuneration for the Executive Directors and other senior executives and gender pay gap reporting. In addition, the Committee has reviewed the malus and clawback provisions in the rules of the bonus and share award plans to ensure they remain appropriate.

82 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Remuneration Report Strategic Report

2017 performance At the start of 2017, we expected a challenging year ahead for advertising with continued The business economic and political uncertainty impacting business confdence. Our internal forecast of a c.5% contraction in the advertising market over the year, which set the context for the has continued to 2017 target setting, has subsequently proved to be accurate. Despite these challenges, ITV has continued to perform strongly. Real progress has been made against operational make signifcant KPIs and tight control maintained over costs and cash. Governance progress despite The 2017 adjusted EBITA target was set at £785 million versus the 2016 adjusted EBITA outcome of £885 million. This lower, but still stretching, 2017 target reflected the decline external challenges. in the external advertising environment mentioned above. In addition, it should be noted that the 2016 proft out-turn benefted from a format sale in a new geography, which This has been would not repeat in 2017. Given these downward pressures, the 2017 actual target being £100 million below the 2016 out-turn was considered by the Board and the Committee achieved under to be stretching at the time the target was set. the leadership of However, strong performance against a number of metrics ensured that adjusted EBITA for 2017 was £842 million which represented a signifcant outperformance of expectations Ian Griffths and at the start of the year. Linear viewing is up for the second year and continues to deliver the mass audiences and key demographics advertisers demand. Video on Demand (VOD) Peter Bazalgette.” viewing is up nearly 40% with The ITV Hub now having over 21 million registered users, with good growth in online advertising. ITV Studios delivered good organic revenue growth and we have a strong pipeline of programmes for 2018.

Overall, and as discussed in the Strategic Report, ITV continues to make signifcant progress StatementsFinancial growing, strengthening and rebalancing the business.

Performance-related pay Performance measures for our Annual Bonus Awards (Bonus) and Long-Term Incentive Plan (LTIP) are closely aligned to our KPIs. These are drawn from our strategy and cover all parts of the business.

Stretching bonus targets were set for 2017, taking into account the challenging external backdrop and the non-recurring item in 2016 described above. The Committee has considered 2017 performance, and the subsequent remuneration outcomes, in this context. The Committee noted that the adjusted EBITA, cost savings and cash conversion targets set at the start of the year were all exceeded. Management has delivered exceptional performance in a very diffcult trading environment. In addition, the operational performance of the business and performance against personal targets have been strong.

Over the past few years, we have included a cost-saving target in our Bonus awards to

ensure that management continues to focus on streamlining the business. Once again, information Additional this target has been exceeded with a further £29 million of savings being delivered.

The Bonus payout level for 2017 is around 97% of maximum. The 2017 all-employee bonus will be paid out in full, reflecting the outstanding contribution of ITV employees in a critical year of transition. Further information and details of the Bonus targets for 2017 are set out on page 88.

The performance period for awards made under the LTIP in 2015 ended on 31 December 2017. Based on performance over the last three years, a vesting outcome of 63% was achieved. Full vesting was not achieved mainly due to outcomes relative to the stretching EPS and share of viewing (SOV) targets originally set. In line with our phased approach to the introduction of holding periods, 50% of the vested amount will become exercisable in March 2020. Details are set out on page 89.

83 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Remuneration Report continued

As Adam Crozier was only in post as Chief Executive for six months of the year (see below), Strategic alignment of his total remuneration for 2017 is signifcantly lower than last year. Ian Griffths’ reported remuneration with KPIs total remuneration for 2017 is £2.720 million, as detailed on page 87. However, this 2017 for 2017 (pages 36 to 39) total remuneration includes the interim arrangements pertaining to his expanded role for part of the year (see below), all of which were fully disclosed at the time of announcement LTIP in May 2017. When considered on a more like-for-like basis, Ian’s total remuneration for 2017 is similar to last year’s.

The Committee considers the total pay for the Executive Directors to be a fair reflection of both ITV’s performance and their respective contribution over the period.

Board changes On 30 June 2017, Adam Crozier stepped down as Chief Executive and on departure his remuneration arrangements were determined in accordance with his contractual terms and the limits set out in the Remuneration Policy approved by shareholders at the 2017 AGM. All variable incentives continue to be performance based and prorated for time served. In light of Adam’s departure, Ian Griffths took on an expanded role in addition to his previous responsibilities, until a new Chief Executive was appointed and had joined. Strategic Performance The Board agreed an interim package to reflect this expanded role. targets weighting 50% Cumulative adjusted EPS Full details of the payments made in respect of these changes were disclosed at the time Financial KPI of announcement in May 2017, and are also set out in the Annual Report on Remuneration. Family SOV 20% Strategic KPI Carolyn McCall joined ITV as Chief Executive on 8 January 2018. Her remuneration Online, pay & interactive 10% arrangements and buy-out arrangements are consistent with the terms of the growth Remuneration Policy approved by shareholders at the AGM in May 2017. Carolyn’s total International production 10% remuneration opportunity is broadly in line with that of the previous Chief Executive revenue and includes a cash allowance for income on retirement of 15% (25% for previous Chief Total non-NAR growth 10% Executive). Details of Carolyn’s package were published at the time of announcement Financial KPI in July 2017, and are replicated on page 92.

Annual Bonus Remuneration Policy implementation in 2018 The policy approved by shareholders in 2017 will continue to apply in 2018. Details of how the Committee proposes to implement the policy in 2018 are set out on page 91.

Following Carolyn’s appointment, the Company has commenced a strategic refresh which will set the priorities for the business over the medium to long term. Following consultation with major shareholders, the Committee has decided to defer the setting of performance metrics and targets for the 2018 LTIP awards until this refresh has been completed to ensure that the metrics and targets are fully aligned with the strategic plan.

Once the metrics and targets have been agreed, the Committee expects to publish details on the Company’s website and in the 2018 Remuneration Report. While the metrics and targets are yet to be determined, the Committee would expect to engage with major Strategic Performance targets weighting shareholders regarding any material changes to the current approach. Adjusted ITV plc EBITA 60% Financial KPI Shareholder views Individual targets 25% Over the course of the past year, we consulted with major shareholders on a number of (see page 89) matters and we will seek to maintain this dialogue in future years. We would like to take the Proft to cash conversion 10% opportunity to thank the investors and proxy voting agencies who took part in this process. Financial KPI In this Remuneration Report, we have sought to adopt a transparent approach and we Cost savings 5% would welcome feedback from our shareholders regarding the key decisions made.

Mary Harris Chair, Remuneration Committee 28 February 2018

84 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Remuneration Report Strategic Report

Who is on the Committee The Committee is composed entirely of Non-executive Directors. The current members are: • Mary Harris (Chair) • Anna Manz Full details of attendance at Committee • Sir Peter Bazalgette • John Ormerod meetings can be found on the table on • Roger Faxon page 68 Governance

Our role The main role of the Committee is to: • Review the ongoing appropriateness, relevance and effectiveness of the Remuneration Policy Following each meeting, the Committee including in relation to retention and development communicates its main discussion points • Propose to shareholders changes to the Remuneration Policy as appropriate and fndings to the Board. Regular • Approve the implementation of remuneration arrangements for the Executive Directors, discussion topics are set out below. Management Board and other senior executives (together the Senior Executive Group) taking into account arrangements for the wider employee group. Details on employee remuneration can be found on page 100 • Approve the design of the Company’s annual bonus arrangements and long-term incentive plans, including the performance targets that apply for the Senior Executive Group • Determine the award levels for the Senior Executive Group based on performance against annual bonus targets and long-term incentive conditions

Meetings in 2017 StatementsFinancial

January February May September October November • Financial performance • Bonus targets agreed • Market update • Reward framework • Bonus payout • Bonus framework update for current year • Financial and current trends forecasts and targets • Indicative bonus • LTIP awards and performance update • Consideration of • Consider operation • Terms of reference outcomes and targets agreed remuneration in the of current incentives review payout levels for current year wider employee group • Review of • Indicative LTIP • Remuneration Report remuneration performance and • Compliance with consultants vesting levels Remuneration Policy • Gender pay gap • Pay review outcomes • Compliance with • Annual pay review and changes to shareholding Senior Executive Group guidelines • Remuneration Report • Advisor independence

In addition to Committee members, the Chief Executive, COO & CFO, Group HR Director, Director of Pensions and Reward and independent information Additional adviser Deloitte regularly attend meetings.

Annual review In addition to feedback from members of the Committee, input was also sought from the Chief Executive, COO & CFO, Group HR Director and Deloitte, the independent adviser to the An annual review of the performance Committee. of the Committee was conducted for Overall, the review concluded that the Committee is responding appropriately to its terms of the year. reference and will continue to develop its role. Priorities for this year will include a review of the terms of reference in light of the new UK Corporate Governance Code and the strategy refresh.

The Committee’s terms of reference can be accessed on our website. www.itvplc.com/investors/governance

85 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Remuneration Report continued

Remuneration Policy The Company’s Remuneration Policy was approved by shareholders at the AGM on 10 May 2017 for a three year period. This Policy will continue to apply for 2018.

The Policy aims to balance the need to attract and retain high-quality talent essential to the Company’s success with the need to be cost effective and to reward exceptional performance. The Policy balances these factors, while taking into account prevailing best practice and fair outcomes for investors.

A signifcant proportion of the package is tied to the achievement of stretching performance conditions that align remuneration with our strategy to deliver strong business performance and create shareholder value.

A summary of the Policy is below. The full Policy can be found on our website:

www.itvplc.com/investors/governance

Key features How we implement policy Link to strategy

Base salary Reflect skills, responsibility Reviewed annually with Supports recruitment and and provision and experience. consideration given to personal retention of Executive Directors and company performance; of the calibre required to deliver for an income Competitive post-retirement pay levels in relevant market; the strategy. in retirement benefts or cash allowance. the wider employee pay review. 2018 salaries: Carolyn McCall – £900,000 Ian Griffths – £642,213

2018 cash allowance for income in retirement: Carolyn McCall – 15% (25% for previous Chief Executive) Ian Griffths – 25%

Annual Bonus – Targets and measures set Majority of the opportunity To incentivise achievement of key cash and Deferred annually based on business based on corporate and fnancial fnancial measures and objectives Share Award plans at the start of each measures, the remainder on to deliver the business strategy. year with payout determined performance against individual Compulsory deferral element following the year end based and/or strategic objectives. provides alignment with on performance against Up to 20% of the maximum shareholder experience and objectives. opportunity will be received supports retention of executives. Not more than two-thirds for threshold performance. delivered in cash with the Maximum opportunity will not balance deferred into shares exceed 200% of salary. under the DSA, normally for a period of three years. Current ongoing maximum: Carolyn McCall – 180% of salary Ian Griffths – 165% of salary

LTIP Performance measures closely The maximum award that may To incentivise delivery of linked to fnancial and strategic be granted in any fnancial year performance aligned to the priorities. is 350%. business strategy over the longer term and the creation Performance period is not less 2018 grant levels: of shareholder value. than three years, with awards Carolyn McCall – 265% of salary to be held for an additional two Ian Griffths – 225% of salary year holding period after the end of the performance period. Subject to malus and clawback.

86 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Annual Report on Remuneration Strategic Report

Annual Report on Remuneration

The sections of the Annual Report on Remuneration that have been audited by KPMG are pages 87 to 90, page 92 to 93 (limited to Non-executive Directors and payments to past directors for loss of offce sections) and pages 94 to 95.

Remuneration Policy application in 2017 The following section provides details of how the current Remuneration Policy was implemented in 2017. Governance Executive Directors The table below sets out in a single fgure the total remuneration for both Executive Directors for the fnancial year.

Adam Crozier 1 Ian Griffths 2017 2016 2017 2016 £000 £000 £000 £000 Salary 470 941 608 575 Taxable benefts 10 19 15 14 Pension 118 235 152 144

Bonus (cash and shares) 829 677 979 380 Share awards 2, 3 623 1,760 507 1,076

Interim arrangements 4 – – 459 – Financial StatementsFinancial Total 2,050 3,632 2,720 2,188

Less interim arrangements 4 – – (459) –

Total: excluding interim arrangements 2,050 3,632 2,261 2,188

1. Adam Crozier stepped down from the Board on 30 June 2017 and the amounts shown have been prorated for time served. 2. The amount shown for 2017 is the indicative value of the 2015 LTIP awards that were subject to performance conditions measured to 31 December 2017. 3. In the 2016 Annual Remuneration Report, the amount shown was the indicative vesting value of the 2014 LTIP awards that were subject to performance conditions measured to 31 December 2016. The fgures shown in the table above for 2016 represent the subsequent value received on the vesting date of 30 May 2017 using the share price on that date (199.4 pence). 4. The 2017 remuneration for Ian Griffths includes a temporary salary supplement that consisted of £133k salary, £33k pension and £293k bonus. 5. The aggregate emoluments for all Directors as required under Schedule 5 (SI 2008/410), is the total remuneration shown in the table above less share awards but including gains on exercise of options and amounts receivable under LTIPs, plus the total emolument fgures for Non-executive Directors shown on page 90. 6. Details of remuneration arrangements for Sir Peter Bazalgette are set out on page 90.

Further information in relation to each of the elements of remuneration for 2017 set out in the table above is detailed below. An explanation for 2016 is set out in detail in our 2016 Annual Report and Accounts, which can be found on our website. Additional information Additional

www.itvplc.com/investors

Salary Executive Directors did not receive a salary increase from 1 January 2017 as part of the normal salary review process.

Adam Crozier’s annual salary for the year was £941,000. During the year, Ian Griffths was appointed to an expanded role as COO & CFO. In order to reflect the increased operational responsibilities associated with the new role, his salary was increased by £50,000 to £625,025 per annum with effect from 3 May 2017.

Following Adam Crozier’s decision to step down from the Board, Ian Griffths was asked to lead the executive team on an interim basis and take on additional responsibilities until a new Chief Executive joined the business. To reflect these additional responsibilities, he received a temporary salary supplement of £200,000 per annum. In order to facilitate a suitable transition, this supplement will remain payable until 7 April 2018. Full disclosure of the above changes to salary were set out on the Company’s website on 3 May 2017.

Peter Bazalgette took the role of Executive Chairman from 30 June 2017 to 8 January 2018. He received no additional remuneration for this.

87 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Remuneration Report continued

Taxable benefts The benefts provided to the Executive Directors include the cost of private medical insurance and car-related benefts.

Bonus (cash and shares) Annual incentives are provided to Executive Directors through the bonus, with one-third of any award usually deferred into shares under the Deferred Share Award Plan (DSA). The performance conditions that apply to the bonus are set on an individual basis and are linked to the Company’s corporate, fnancial and strategic priorities. This enables the Committee to reward both annual fnancial performance delivered for shareholders and performance against specifc fnancial, operational or strategic objectives set for each Executive Director. Payments and deferrals in respect of the fnancial year are set out below.

The maximum bonus opportunity of 180% of salary for Adam Crozier was prorated for the period he was employed up to 30 June 2017. The maximum bonus opportunity for Ian Griffths was increased from 165% to 180% for the period he was in receipt of a temporary salary supplement.

% of maximum Value delivered bonus opportunity in shares under Value paid earned the DSA in cash Total value Adam Crozier 97.92% £276,404 £552,808 £829,212 Ian Griffths 97.50% £423,958 £847,916 £1,271,874

Of the total bonus shown for Ian Griffths, £978,521 relates to his ongoing bonus arrangements while £293,353 relates to the interim arrangements implemented on Adam Crozier’s departure from the Board. The percentage of maximum bonus opportunity earned for 2016 was 40% for both Adam Crozier and Ian Griffths.

The majority of the bonus (75%) was based upon the achievement of corporate and fnancial targets, with payout determined in accordance with pre-set target ranges subject only to the usual adjustments to exclude the impact of material in-year acquisitions and currency movements. The corporate and fnancial targets used for 2017, together with performance against those targets and the resulting level of payout are set out below.

Performance required Performance Payout level Performance measure Strategic targets Weighting Threshold Target Maximum achieved (% of maximum) Adjusted ITV plc EBITA 60% £745m £785m £825m £842m 100% Proft to cash conversion 10% 81% 85% 89% 91% 100% Cost savings 5% £23m £25m £27m £29m 100%

Up to 20% is payable for threshold and up to 60% for target performance.

At the start of 2017, we expected a challenging year ahead for advertising with continued economic and political uncertainty impacting business confdence. Our internal forecast of a c.5% contraction in the advertising market over the year, which set the context for the 2017 target setting, has subsequently proved to be accurate. Despite these challenges, ITV has continued to perform strongly. Real progress has been made against operational KPIs and tight control maintained over costs and cash.

The 2017 adjusted EBITA target was set at £785 million versus the 2016 adjusted EBITA outcome of £885 million. This lower, but still stretching, 2017 target reflected the decline in the external advertising environment mentioned above. In addition, it should be noted that the 2016 proft out-turn benefted from a format sale in a new geography, which would not repeat in 2017. Given these downward pressures, the 2017 actual target being £100 million below the 2016 out-turn was considered by the Board and the Committee to be stretching at the time the target was set.

However, strong performance against a number of metrics ensured that actual adjusted EBITA for 2017 was £842 million which represented a signifcant outperformance of expectations at the start of the year. Linear viewing is up for the second year and continues to deliver the mass audiences and key demographics advertisers demand. Video on Demand (VOD) viewing is up nearly 40% with The ITV Hub now having over 21 million registered users, with good growth in online advertising. ITV Studios delivered good organic revenue growth and we have a strong pipeline of programmes for 2018.

The remainder of the bonus (25%) was based upon the Committee’s assessment of the contribution each Executive Director made to the overall strategy through the delivery of specifc targets. The Committee applies suitable judgement when assessing performance in this regard. Both Executive Directors had a number of common objectives aligned to our strategic priorities and delivered well against these objectives. The factors taken into account are summarised overleaf.

88 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Annual Report on Remuneration Strategic Report

Payout level Individual performance factors (% of maximum) Adam Crozier • Leadership and support of development of a creative, collaborative culture 91.67% • Facilitating a strong pipeline of programmes for 2018 (prorated) • Overseeing conditions leading to the rebalancing of revenue streams

• Consistent and sustained strong performance in these areas Governance Ian Griffths • Effective leadership of M&A activity 90% • Supporting the leadership team to deliver international creative performance • Development of the London property development plans • Supporting the Executive Chairman in delivery of key strategic priorities and embracing an expanded executive portfolio following Adam’s departure from the Board

Share awards We are required to show share awards in the single fgure table on page 87 according to the year in which the performance period for each performance condition ended. The awards made in 2015 under the LTIP were subject to performance conditions measured to 31 December 2017. 63% of the total awards met performance conditions on 31 December 2017 and the indicative value of these awards is set out below.

Number of Value at Number of Number of Value at shares award date shares shares 31 December 2017 awarded £ due to lapse due to vest £ Adam Crozier1 804,436 2,065,500 424,244 380,192 £622,754 Ian Griffths2 491,722 1,262,250 181,937 309,785 £507,428 Financial StatementsFinancial 1. For Adam Crozier, the number of shares that vest has been prorated for time served from the date of award to the vesting date in line with the rules of the LTIP. 50% of the shares that vest will become exercisable on 27 March 2018 and 50% will become exercisable after a two year holding period on 27 March 2020. 2. For Ian Griffths, 50% of the shares that vest will become exercisable following a one year holding period on 27 March 2019, and the remaining 50% will become exercisable after a two year holding period on 27 March 2020. 3. For the purpose of the single fgure table, the share price used to value the shares at 31 December 2017 was the average share price for the fnal quarter of 2017 (163.8 pence). 4. The share price used to calculate the number of shares under award was 256.7 pence (the average of the share price on each of 24, 25 and 26 March 2015).

When considering performance outcomes, the Committee looks beyond formulaic results to ensure the outcomes align with overall business performance. For these awards, the formulae were applied without adjustment. Dividends accrue on vested shares during the holding period.

Details of the performance achieved for the 2015 LTIP awards are below. A gateway condition of minimum cumulative adjusted EPS (45.7 pence) was met before any portion of the award could vest.

Performance Payout level Performance measure Strategic targets Weighting Threshold Maximum achieved (% of maximum)

Cumulative adjusted EPS 50% 45.7p 52.2p 49.5p 66.77% Additional information Additional Family SOV 20% 22.0% 22.44% 21.73% 0% Total non-NAR growth 10% 5% growth pa 10% growth pa 15.90% 100% International Production Revenue 10% 5% growth pa 15% growth pa 28.71% 100% Online, Pay & Interactive Revenue 10% 5% growth pa 18% growth pa 17.47% 96.36%

Vesting is on a straight-line basis between the threshold and maximum values shown in the table above.

89 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Remuneration Report continued

Pension The Executive Directors were not part of an ITV pension scheme but received a cash allowance in lieu of pension with a value of 25% of base salary. The cash allowance does not form part of the base salary for the purpose of determining incentives.

Chairman and Non-executive Directors The table below sets out in a single fgure the total remuneration for Non-executive Directors for the fnancial year.

Fees Taxable benefts1 Total

2017 2016 2017 2016 2017 2016 Notes £000 £000 £000 £000 £000 £000 Peter Bazalgette (Chairman) 450 312 2 2 452 314 Salman Amin 2 64 – 4 – 68 – Margaret Ewing 3 12 – – – 12 – Roger Faxon 4 69 65 9 8 78 73 Mary Harris 5 86 74 4 8 90 82 Andy Haste 6 103 115 – 1 103 115 Anna Manz 7 74 63 – 1 74 63 Archie Norman 8 – 184 – – – 184 John Ormerod 90 90 – 2 90 92 948 903 19 22 967 923

1. The amounts disclosed in the table above relate to the reimbursement of taxable relevant travel and accommodation expenses for attending Board meetings and related business. The value disclosed is inclusive of tax arising on the expense, which is settled by the Company. 2. Salman Amin was appointed to the Board on 9 January 2017. 3. Margaret Ewing was appointed to the Board and the Audit and Risk Committee on 31 October 2017. 4. Roger Faxon was appointed to the Remuneration Committee on 1 May 2017. 5. Mary Harris succeeded Andy Haste as Chair of the Remuneration Committee on 10 May 2017. 6. Andy Haste retired from the Remuneration Committee on 10 May 2017. 7. Anna Manz was appointed to the Remuneration Committee on 1 May 2017. 8. Archie Norman retired from the Board on 12 May 2016.

LTIP awards made in 2017 On 11 May 2017, an award was made under the LTIP to Ian Griffths in the form of nil-cost options, subject to performance over the period to 31 December 2019.

Performance % salary awarded Number of options Value at award date period ends Holding period Vesting date Release date 225 705,730 £1,406,306 31 December 2019 2 years 11 May 2020 11 May 2022

The Committee sets targets for the LTIP taking into account external forecasts, internal budgets, business priorities, risks and uncertainties. Targets are set to be appropriately stretching in this context, with maximum performance set at a level that is considered to be the delivery of exceptional performance. The award made in 2017 is subject to performance measures and targets as set out below. The award will be subject to an initial cumulative adjusted EPS performance gateway equal to that required for threshold performance (56.3 pence) before any portion of the award can vest.

Threshold Maximum Performance measure Strategic targets Weightings (20% vesting) (100% vesting) Cumulative adjusted EPS 50% 56.3p 64.2p Family SOV 20% 20.2% 21.6% Total non-NAR growth 10% 5% growth pa 10% growth pa International production revenue 10% 5% growth pa 15% growth pa Online, Pay & Interactive revenue 10% 5% growth pa 18% growth pa

Vesting between threshold and maximum is on a straight-line basis. Family SOV has an additional vesting step of 75% for performance of 21.36%. When assessing performance against this target, the Committee will also have regard to the health of the main ITV channel.

90 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Annual Report on Remuneration Strategic Report

Remuneration Policy in 2018 The following section provides details of how the Remuneration Policy will be implemented in 2018.

Salary Salaries are paid in line with the Remuneration Policy. On 1 January 2018, Ian Griffths received an increase of 2.75% in line with the wider employee group.

2018 Salary Governance Carolyn McCall £900,000 Ian Griffths £642,213

Taxable benefts and pension These are provided in line with the Remuneration Policy.

Both Carolyn McCall and Ian Griffths receive private medical cover, car-related benefts, and a cash allowance in lieu of participation in any ITV pension scheme.

Bonus (cash and shares) The targets for the annual bonus are generally set at the start of the fnancial year. The targets are based on assumed market conditions and take into account both the budget for the year as well as longer-term strategic priorities.

Awards made to Executive Directors through the bonus will be paid two-thirds in cash and one-third deferred into shares under the DSA. The performance metrics and weightings for 2018 bonuses will be similar to previous years. The Board considers the actual targets for 2018 to be commercially sensitive at this time and we envisage including equivalent disclosures to those included for the 2017 bonus in Financial StatementsFinancial next year’s report. The Committee may adjust bonus targets or outcomes to reflect signifcant one-off events (e.g. major transactions), foreign exchange movements or material changes to assumed plan conditions to ensure that the plan continues to reward performance fairly. The Committee may amend the bonus pay-out should any formulaic assessment of performance not reflect the overall business performance of the year.

Share awards The performance measures for LTIP awards are reviewed annually to ensure that they remain aligned with the Company’s strategic priorities over the course of the three year performance period.

For 2018, Carolyn McCall will be granted an award over 265% of salary and Ian Griffths an award over 225% of salary.

Following Carolyn’s appointment as Chief Executive in January 2018, the Company is currently in the process of completing a strategic refresh. The Committee has decided to defer the setting of performance measures for the 2018 awards until the strategic refresh has been completed. This is to ensure that the targets are fully aligned with the future strategic plan. Major shareholders were consulted regarding this approach and the feedback was supportive.

Once the targets for the 2018 awards have been set, the Committee expects to disclose these to shareholders on the Company’s website and Additional information Additional in the Remuneration Report for 2018. The Committee will engage appropriately with major shareholders regarding any material changes.

Malus and Clawback Malus and clawback provisions may be operated at the discretion of the Committee in respect of any cash and deferred share elements of the bonus and awards made under the LTIP. Under malus, unvested share awards (including any LTIP shares subject to a post-vesting holding period) can be reduced (down to zero if considered appropriate) or be made subject to additional conditions. Clawback allows for repayment of bonuses previously paid and/or shares previously received following vesting. Malus/clawback can be operated up to four years following the start of the relevant bonus year for bonuses, and up to six years from the relevant date of grant for LTIP awards. The circumstances in which the operation of these provisions would be applied may be considered from time to time but currently include material misstatement of results, gross misconduct or fraud. The Committee has carried out a review of these arrangements and is happy that there is no need to instigate either malus or clawback for any vested or outstanding awards at this time.

91 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Remuneration Report continued

Non-executive Directors There was no increase to Non-executive Director fees from 1 January 2018, which are as set out below.

1 January 2018 1 January 2017 £ £ % Change Chairman 450,000 450,000 – Board fee 65,064 65,064 – Additional fees for: Senior Independent Director 25,000 25,000 – Audit and Risk Committee Chairman 20,000 20,000 – Audit and Risk Committee member 5,371 5,371 – Remuneration Committee Chairman 20,000 20,000 – Remuneration Committee member 5,371 5,371 –

Sir Peter Bazalgette acted as Executive Chairman from June 2017, with no additional fees paid, and resumed his non-executive role from 8 January 2018. In addition to his fee, Peter will receive private medical insurance and this will be disclosed in full in 2018. Details of Committee memberships can be found on pages 62 and 63.

Carolyn McCall – buyout arrangements In line with the Remuneration Policy, it was agreed that ITV would buy out certain bonus and share awards that Carolyn forfeited by leaving her previous employer, easyJet plc, and joining ITV. Details of forfeited arrangements are set out in the easyJet plc Annual Report and Accounts for 2016/17.

In determining the buyout, the Committee has taken into account relevant factors including performance conditions attaching to the forfeited awards, the likelihood of the awards vesting and the form and timing of the awards. The awards will be bought out on a comparable basis where possible, particularly where the performance period has completed. Part of the buyout will be dependent on the extent to which legacy incentives at her previous employer vest in due course.

All elements of the buyout package are subject to continued employment. If Carolyn gives notice to leave the Company within 12 months of commencing employment, all awards paid or that vested during this period will be repayable by her.

The buyout arrangements comprise the following: • Annual bonus – easyJet bonus award forfeited in respect of 2016/17 will be replaced with an award of equivalent value. This will include a cash payment of £607,287 and a deferred share award equivalent to £303,643, which will vest after three years. • Legacy deferred bonus shares – shares relating to easyJet bonuses paid in prior years, and not subject to additional performance conditions, will be replaced with equivalent awards over ITV shares that will vest over the same time horizon as awards forfeited. • Long-term incentives – various long-term incentive awards that were forfeited on joining ITV will be replaced with equivalent ITV share awards. The value of the buyout in respect of the 2014 and 2015 awards will be based on the fnal vesting outcome for the corresponding easyJet awards. To the extent that the 2015 award lapses, no buyout will be made. In respect of the 2016 award, a replacement award will be granted in due course, subject to ITV performance criteria. Consistent with the approach taken in respect of the 2018 ITV LTIP award, the exact performance criteria will be determined following the completion of the strategic refresh. In all cases, the awards will vest and be released over the same time horizons as awards forfeited, which includes the continued application of relevant holding periods.

The share elements of the buyout will be formally granted during the course of 2018. Full details regarding the buyouts denominated in shares will be set out in the relevant stock exchange announcement at the time of grant, and shareholders will also be provided with additional detail in next year’s Remuneration Report.

Other Disclosures Payments to past Directors or for loss of offce Adam Crozier stepped down as Chief Executive on 30 June 2017. His 12 month notice period commenced on 3 May 2017, the date his decision was advised to the Board. As announced on the Company’s website on 3 May 2017, on cessation of employment and in line with his contractual arrangements he received a payment in lieu of his remaining notice period and in respect of accrued but untaken holiday totalling £1,052,866. He continues to receive private healthcare, a fuel card and life cover until 2 May 2018 when his notice period ends. In addition Adam Crozier received an allowance for legal advice and outplacement services with a cap of £50,000.

92 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Annual Report on Remuneration Strategic Report

The Committee agreed to treat share awards as follows: • DSA – for bonus already earned, all outstanding awards were released in full on 30 June 2017. • LTIP – any unvested nil-cost options vest on their normal vesting dates, are subject to the same performance conditions as other participants and were prorated to 30 June 2017. In respect of the 2014 award (which had already vested) the frst tranche was exercised on 30 May 2017 and the second tranche on 30 June 2017. In respect of the 2015 award, the award vests in March 2018 with the frst tranche exercisable in March 2018 and the second tranche in March 2020. In respect of the 2016 award, this will vest in March 2019 and become exercisable in March 2021. Governance

In line with contractual arrangements, a bonus payment will be made in March 2018 for the six months served as a director in 2017. One-third of this will be payable in shares in the normal way but the Committee has agreed that these will not be subject to a deferral period. The value of these shares is included in the single fgure table on page 87 with further details on page 88.

Chief Executive remuneration The table below provides a summary of the total remuneration received by the Chief Executive over the last nine years, including details of the annual bonus payout and long-term incentive award vesting level in each year.

Long-term Total incentive award remuneration Bonus % vesting % £000 of maximum of maximum 2017 Peter Bazalgette (for the six month period served) – Executive Chairman 225 – – 2017 Adam Crozier (for the six month period served) 2,050 97.9 63 2016 Adam Crozier 3,632 40 80 2015 Adam Crozier 3,881 96 75

2014 Adam Crozier 4,842 94 75 StatementsFinancial 2013 Adam Crozier 8,399 93 87 2012 Adam Crozier 2,915 91 12 2011 Adam Crozier 2,1 58 88 – 2010 Adam Crozier (for the eight month period served) 1,350 95 – 2010 John Cresswell (for the four month period served) – interim Chief Executive 661 83 – 2009 Michael Grade – Executive Chairman 2,583 94 –

The long-term incentive award vesting percentage relates to the proportion of the award that met performance conditions in the relevant fnancial year.

Comparison of Chief Executive to wider employees The table below provides details of the percentage change in the base salary, benefts and bonus of the Chief Executive between 31 December 2016 and 31 December 2017 compared with the average percentage change for other employees.

% change in % change in % change in Notes base salary benefts bonus payments information Additional Chief Executive 1, 2 – 5.11 144.79 All employees 3, 4 4.58 7.84 31.99

1. As Adam Crozier stepped down as Chief Executive during the year, the values received by him up to 30 June 2017 have been annualised to enable a comparison. 2. Benefts include the cost of medical insurance and car-related benefts. 3. As the majority of employees are based in the UK, overseas employees have not been included. 4. The percentage change in benefts is the average change for all employees (excluding the Chief Executive) with any of the same benefts as the Chief Executive.

The Committee is mindful of pay practices across the Group and during the course of the year regular updates are provided regarding remuneration trends for the wider employee population. The Committee considers pay in the wider group from a number of perspectives. Overall, the Committee is keen to ensure pay practices across the Senior Executive Group are fair, reflect the nature of the role and align with performance.

93 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Remuneration Report continued

Directors’ share interests Shareholding guidelines The Committee continues to recognise the importance of Directors being shareholders so as to align their interests with other shareholders.

Shareholding guidelines are in place, which encourage Executive Directors to build up a holding of ITV plc shares based on a percentage of base salary. 50% of the requirement must normally be obtained within three years of appointment and the remainder normally within fve years.

% of salary % of salary required under held at shareholding 31 December guidelines 2017 Adam Crozier1 400 439 Ian Griffths2 200 366

1. The value of shares held by Adam Crozier is based on his holding at 30 June 2017 when he stepped down from the Board. The share price used to value the shares on 30 June 2017 was 181.4 pence. 2. The value of shares held by Ian Griffths is based on his holding at 29 December 2017 using a share price of 163.8 pence.

Where the value of shares required to be held increases as a result of a salary increase (or an increase in the relevant percentage), the Executive Directors will have three years from such increase to achieve compliance. The Committee may change the guidelines so long as they are not, overall, in the view of the Committee, less onerous.

Non-executive Directors are required to build and then maintain a holding of 100% of their base fee over the six years from the date of appointment to the Board (unless for some reason they are unable to retain their fees). The current position against the guidelines for each Non-executive Director is set out in the table below.

Interests in shares The fgures set out below represent shareholdings in the ordinary share capital of ITV plc benefcially owned by Directors and their family interests at 31 December 2017.

Interests in shares Shareholding guidelines % of salary/base % of salary/base fees required under fees held at 2 January 31 December 31 December the shareholding 31 December 2018 2017 2016 guidelines 2017 Salman Amin1 – – – 100 – Peter Bazalgette 3,4 249,095 236,070 197,108 100 91 Margaret Ewing 2 6,700 6,700 – 100 17 Roger Faxon 28,910 28,910 21,910 100 73 Ian Griffths 1,254,554 1,254,554 1,254,554 200 366 Mary Harris 3,4 19,883 1 7, 870 12,028 100 50 Andy Haste 3,4 141,032 139,200 125,446 100 355 Anna Manz 32,993 32,993 31,588 100 83 John Ormerod 175,510 175,510 168,407 100 442

1. Salman Amin was appointed to the Board on 9 January 2017. 2. Margaret Ewing was appointed to the Board and Audit and Risk Committee on 31 October 2017. 3. Shares were acquired on 2 January 2018 under a trading plan using 25% of their fees, after statutory deductions, for the quarter to 31 December 2017. 4. The value of shares has been calculated using the share price on 29 December 2017 of 163.8 pence.

94 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Annual Report on Remuneration Strategic Report

Outstanding interests under share schemes The following tables provide details of Directors’ interests in outstanding share awards.

Share price Share price Date At At used for at date of of release/ 1 January Awarded Vested Exercised Lapsed 31 December award vesting exercise Notes 2017 in year in year in year in year 2017 (pence) (pence) in year Adam Crozier DSA 1 Governance 28 March 2017 2, 5 – 107,949 107,949 107,949 – – 209.2 181.40 30 June 2017 29 March 2016 219,406 – 219,406 219,406 – – 241.0 181.40 30 June 2017 27 March 2015 197,741 – 197,741 197,741 – – 256.7 181.40 30 June 2017 28 March 2014 240,534 – 240,534 240,534 – – 194.5 209.88 28 March 2017 LTIP 29 March 2016 878,481 – – – 512,447 366,034 241.0 27 March 2015 3 804,636 – – – 201,159 603,477 256.7 30 May 2014 4 1,103,543 – 441,418 441,418 110,354 – 183.5 199.40 30 May 2017 441,417 441,417 110,354 – 183.5 180.55 3 July 2017

Ian Griffths DSA 1 28 March 2017 2, 5 – 60,472 – – – 60,472 209.2 29 March 2016 121,628 – – – – 121,628 241.0 Financial StatementsFinancial 27 March 2015 112,186 – – – – 112,186 256.7 28 March 2014 122,269 – 122,269 122,269 – – 194.5 209.88 28 March 2017 LTIP 11 May 2017 5 – 705,730 – – – 705,730 199.3 29 March 2016 536,850 – – – – 536,850 241.0 27 March 2015 3 491,722 – – – – 491,722 256.7 30 May 2014 4 674,387 – 539,510 269,755 134,877 269,755 183.5 199.40 30 May 2017

1. There are no performance conditions attaching to the DSA. 2. DSA awards made in 2017 for 2016 performance are included in the single fgure table on page 87. 3. LTIP performance conditions were met in 2017 (63%). For Ian Griffths, 50% will become exercisable on 27 March 2019, the remainder on 27 March 2020. For Adam Crozier, the Committee has exercised its discretion so that 50% will become exercisable on 27 March 2018 and the remainder on 27 March 2020. The indicative values at 31 December 2017 are included in the single fgure table on page 87. 4. LTIP performance conditions were met in 2016 (80%) and the value is included in the single fgure table on page 87. 50% became exercisable on 30 May 2017 with the remainder on 30 May 2018. For Adam Crozier the Committee exercised its discretion so that the remainder subject to the one year holding period became exercisable on 3 July 2017. 5. The face value of awards granted in the fnancial year to Ian Griffths under the LTIP was £1,406,306. Adam Crozier did not receive an award. The face values of awards granted in the fnancial year under the DSA were £225,828 and £126,506 to Adam Crozier and Ian Griffths respectively.

6. Performance conditions that apply to the outstanding awards under the LTIP are set out in the table below. information Additional

2015 2016 2017 Strategic Threshold Strategic target targets Weighting vesting Threshold Maximum Threshold Maximum Threshold Maximum EPS Gateway 45.7p 54.6p 56.3p Cumulative adjusted EPS 50% 20% 45.7p 52.2p 54.6p 62.4p 56.3p 64.2p Family SOV 20% 20% 22% 22.44% 20.2% 21.6% 20.2% 21.6% Annual non-NAR growth 10% 20% 5% 10% 5% 10% 5% 10% International production revenue growth 10% 20% 5% 15% 5% 15% 5% 15% Online, Pay & Interactive revenue growth 10% 20% 5% 18% 5% 18% 5% 18% Cumulative adjusted Cumulative adjusted Cumulative adjusted EPS years 2015 to 2017 EPS years 2016 to 2018 EPS years 2017 to 2019 Vesting between threshold and maximum (100%) is on a straight-line basis for all targets except SOV, which vests at 75% with a straight-line vesting between threshold and maximum.

95 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Remuneration Report continued

Executive Directors’ non-executive directorships With specifc approval of the Board, Executive Directors may accept external appointments as Non-executive Directors of other companies and retain any related fees paid to them.

During the year, the Executive Directors retained fees for the directorships set out below.

2017 Company £000 Adam Crozier Whitbread plc 15 Ian Griffths DS Smith plc 56

Fees shown for Adam Crozier are those paid up until 30 June 2017 when he stepped down from the Board of ITV plc.

Service contracts Executive Directors Executive Directors have rolling service contracts that provide for 12 months’ notice on either side. There are no special provisions that apply in the event of a change of control.

Nature of Notice period Notice period Compensation for Date of appointment contract from Company from Director early termination Carolyn McCall 8 January 2018 Rolling 12 months 12 months None Ian Griffths 9 September 2008 Rolling 12 months 12 months None

A payment in lieu of notice, including base salary, contractual benefts and contractual provision for an income in retirement, may be made if: • the Company terminates the employment of the Executive Director with immediate effect, or without notice; or • termination is agreed by mutual consent.

With the exception of termination for cause or resignation, Executive Directors will be eligible for a bonus award prorated to reflect the proportion of the fnancial year for which they were employed and subject to performance achieved, provided they have a minimum of three months’ service in the bonus year.

Non-executive Directors Each Non-executive Director, including the Chairman, has a contract of service with the Company. Non-executive Directors will serve for an initial term of three years, subject to election and then annual re-election by shareholders, unless otherwise terminated earlier by and at the discretion of either party upon one month’s written notice (12 months for the current Chairman). After the initial three year term, reappointment is on an annual basis.

All Non-executive Directors are subject to election or re-election at the AGM in 2018. Details of unexpired terms are set out in the table on page 68.

The Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered offce.

Committee membership and advisers The Directors who were members of the Committee when matters relating to the Executive Directors’ remuneration for the year were considered are set out on page 85.

The Committee obtains advice from various sources in order to ensure it makes informed decisions. The Executive Directors are invited to attend Committee meetings as appropriate. No individual is involved in decisions relating to their own remuneration.

The Group HR Director is the main internal adviser and provides updates on remuneration, employee relations and human resource issues. FIT Remuneration Consultants acted as the independent adviser on remuneration policy and the external remuneration environment up until September 2017. Total fees for advice provided to the Committee during the year amounted to £55,598 (exclusive of VAT and expenses). Deloitte LLP took over as adviser from September 2017. Total fees for advice provided to the Committee during the year amounts to £125,450 (exclusive of VAT and expenses).

The Committee has formally reviewed the work undertaken by both FIT and Deloitte and is satisfed that the advice they have received has been objective and independent. Both FIT and Deloitte are members of the Remuneration Consultants Group and abide by its Code of Conduct.

96 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Annual Report on Remuneration Strategic Report

Spend on pay The table below shows pay for all employees compared with other key fnancial indicators.

2017 2016 % £m £m Change Employee pay 449 419 7.2 Ordinary dividend 294 261 12.6

Special dividend 200 402 (50.0) Governance Employee headcount 6,055 6,121 (1.1)

Employee pay is the total remuneration paid to all employees across ITV on a full-time equivalent basis. More detail is set out on page 127. Employee headcount is the monthly average number of employees across ITV on a full-time equivalent basis. More detail is set out on page 127. There were no share buy-backs during either year.

Historic performance The graph below shows the TSR performance of the Company against the FTSE 100 index over the nine year period to 31 December 2017.

900 800 700 600 500 Financial StatementsFinancial 400 300 200 100 TSR (rebased to 100 at 1 January 2009) 0 31/12/2008 31/12/2009 31/12/2010 31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017

ITV FTSE 100

Shareholder voting At the AGM held on 10 May 2017, votes cast by proxy and at the meeting in respect of the Executive Directors’ remuneration were as follows:

Voting Number of Voting for Number of against Total votes Votes

Resolution shares % shares % cast withheld information Additional

Annual Report on Remuneration 2,827,532,129 94.72 157,593,427 5.28 2,987,579,168 2,453,612

The Remuneration Policy was approved at the AGM for a three year period. Votes cast by proxy and at the meeting were as follows:

Voting Number of Voting for Number of against Total votes Votes Resolution shares % shares % cast withheld

Remuneration Policy 2,945,550,900 98.75 37,188,567 1.25 2,987,579,168 4,839,701

97 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Directors’ Report

The Directors present their Annual Report and the audited consolidated and parent company fnancial statements for the year ended 31 December 2017, which they approved on 28 February 2018. The Directors’ Report comprises this report and the entire Governance section including the Chairman’s Governance Statement.

Articles of Association Unless expressly specifed to the contrary, the Articles of Association may only be amended by special resolution of the shareholders.

The Articles are available on our website.

www.itvplc.com/investors/governance

Auditor During the year, the Audit and Risk Committee considered the performance and audit fees of the external auditor, and the level of non-audit work undertaken. It recommended to the Board that a resolution for the reappointment of KPMG LLP for a further year as the Company’s auditor be proposed to shareholders at the AGM on 10 May 2018.

Change of control No person holds securities in the Company carrying special rights with regard to control of the Company.

All of the Company’s share schemes contain provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions and proration for time where appropriate.

Certain of the Group’s bonds/borrowing facilities have change of control clauses whereby the issuer can require ITV to repay/redeem bonds in the event of a change of control. The Company is not aware of any other signifcant agreements to which it is party that take effect, alter or terminate upon a change of control of the Company.

Directors Appointments: A table showing Directors who served in the year can be found on page 68. Biographies for Directors currently in offce can be found on pages 62 and 63 and on our website.

www.itvplc.com/about/board-of-directors

Directors are appointed for an initial three year period and annually thereafter. In accordance with the UK Corporate Governance Code, each Director, other than those due to step down post the meeting, will retire and submit themselves for election or re-election at the AGM on 10 May 2018.

Detail on compensation for loss of offce can be found in the Remuneration Report on page 92.

Conflicts of interest: The Board has delegated the authorisation of any conflicts to the Nomination Committee and has adopted a Conflicts of Interest Policy. The Board has considered in detail the current external appointments of the Directors that may give rise to a situational conflict and has authorised potential conflicts where appropriate. This authorisation can be reviewed at any time but will always be subject to annual review. The Board is confdent that these procedures operate effectively.

Contracts of significance: No Director had any interest in any contract with the Company or its subsidiary undertakings.

Powers: The powers of the Directors are set out in the Articles of Association. The Articles and a schedule of Matters Reserved for the Board can be found on our website.

www.itvplc.com/investors/governance

98 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Directors’ Report Strategic Report

Dividends The Board has proposed a fnal dividend for the year ended 31 December 2017. Details of this and other dividends paid for the year are as follows:

2017 2016 Interim dividend 2.52p 2.4p Final dividend 5.28p 4.8p

Total ordinary dividend 7.80p 7.2p Governance

Special dividend – 5.0p Total dividend payment 7.80p 12.2p

The fnal dividend for 2017 will be paid on 24 May 2018 to shareholders on the register on 13 April 2018. The ex-dividend date is 12 April 2018.

Employees Disability: ITV has been certifed a Disability Confdent Employer by the Department for Work and Pensions. The Company gives full and fair consideration to the employment of people with a disability or long-term health condition in accordance with the Equality Act 2010. Our employment and recruitment policies are based on equal opportunities and non-discrimination. ITV works with a variety of diversity partners across its apprentice, early careers and permanent and fxed-term contract recruitment (including Creative Access, Mencap, Remploy, Scope and Vercida). The Company provides tailored measures to ensure colleagues are fully supported and that reasonable adjustments are made. We are committed to ensuring that all training, career development and promotional opportunities are accessible and inclusive to all and colleagues with a disability have the same career opportunities for growth and progression. Financial StatementsFinancial ITV’s commitment around the disability agenda extends beyond it legal obligations and partners with a variety of internal and external specialists to drive best practice.

Further information can be found on our Corporate Responsibility website.

www.itvplc.com/responsibility

Diversity: ITV’s goal is to reflect modern society through our programmes, channels, workforce and services, ensuring we are relevant and accessible to all. It’s integral to our business aims to reflect, represent and appeal to the breadth of communities that characterise modern society. Working in partnership with the production community, we aim for our programmes to portray accurately the diverse makeup of modern society by the people on-screen and the editorial content. The Company has a number of policies to support an inclusive workforce and culture, for example the Code of Conduct, Equal Opportunities Policy, Flexible Working Policy and Transitioning at Work Policy. We also have four network groups: ITV Pride (for LGBT+ employees), The Women’s Network, ITV Balance (for working parents, grandparents and carers), and ITV Embrace (for BAME employees), which are open to all. ITV is also a founding member of the Social Mobility Business Partnership to promote social mobility in business, especially in the legal and accountancy professions.

Further information can be found on our Corporate Responsibility website. information Additional

www.itvplc.com/responsibility

99 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Directors’ Report continued

Engagement: It is critical for our ongoing success that we attract, develop, recognise and retain the very best talent across the whole of ITV. To achieve this we continuously engage with our colleagues to ensure they understand our business priorities, how they help to deliver business success and the opportunities available for them to thrive and develop. We regularly survey our employees to hear their feedback. The last survey was completed in 2016, and the overall completion rate was 80%. The overall engagement index is 90%. Throughout 2017 we have been taking action on the results and plan to conduct our next engagement survey in 2018.

This year we launched our frst on-air employee roadshow, which was broadcast globally to all our ITV sites. All employees from around the world were able to watch live interviews with our Chairman and members of the Management Board. Employees from the UK were also invited to attend in person and were able to ask questions directly. Other employees were able to email their questions separately. The roadshow received great feedback and we would look to do this again in future years.

To further promote employee engagement, the Company has a network of Ambassadors who are nominated and elected by employees to represent each part of the business. These Ambassadors share the views of the employees they represent enabling us to understand ways to make ITV a better place to work. The Ambassadors also keep employees up to date with what is going on across the business.

Remuneration: When the Company reviews pay it takes a number of factors into consideration, including the need to stay competitive. Our focus on cash and costs remains incredibly important for the future health of our business. We need to balance our business and fnancial commitments with our continuing investment in our programming and people.

The Company continues to be committed to ensuring employees earn at least the Living Wage or greater. Where appropriate we have agreed additional increases. On 1 January 2018, all eligible employees received a pay increase of 2.75% (2017: 1.5% paid to eligible employees earning less than £100,000).

In addition, a bonus arrangement extends to all our employees, providing a comprehensive incentive framework THAT rewards everybody when the Company is successful. For 2017 the maximum bonus amount was increased from £1,500 to £1,750. The all-employee bonus award for 2017 was paid in full at £1,750 (2016: £1,300).

The Company also operates a successful and popular all-employee Save As You Earn scheme that encourages voluntary investment in ITV shares and a package of voluntary benefts, which provides valuable cost savings for both employees and the Company.

Information about remuneration for the Directors is included in the Remuneration Report on page 82.

Succession planning, training and development: When planning succession within the Company, consideration is given to emergency cover together with medium and long-term succession and this is reviewed annually by the Nomination Committee. There is particular emphasis on growing the internal leadership pipeline through the launch of the following key programmes:

Executive Next generation potential Management Board successors, giving them an opportunity to develop their Development management potential and gain a greater understanding of the business. Programme

Developing Future Delegates selected from across the business identifed as a result of the performance review process. Leaders Programme Content includes understanding what it means to be a leader at ITV, how to manage performance effectively, coaching skills and change management.

There is also a comprehensive portfolio of development courses and workshops in place for all employees that address common development needs. International training for last year was limited. The Company ran workshops in Germany and Hong Kong and this year workshops, on line webinars will be put in place for our international employees. An online training portal called My Academy will also be launched to the international markets.

Spend and investment on training in 2017 can be categorised as follows: Leaders and Managers development spend was £150,000, all employees development spend was £230,000 and the high potential development programme spend was £90,000.

The annual turnover for employees for 2017 was 10.46% (UK only). 4.59 % was planned and 5.86% regrettable.

100 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Directors’ Report Strategic Report

Pensions The Company pensions arrangements are overseen by the Pensions Steering Committee comprised of the COO & CFO (Chairman), Director of Group Finance, Group HR Director, Director of Treasury and Director of Reward and Pensions. The Committee meets monthly and is supported by a range of specialist advisers.

The Company operates a number of pension arrangements which provide retirement and death benefts for employees.

ITV Pension Scheme (the “Scheme”): The Scheme comprises three sections: A, B and C. Section A includes a defned contribution (DC) Governance section. The defned beneft (DB) sections have been closed since 2002 to new members and, following a comprehensive consultation exercise, were closed to future accrual with effect from 28 February 2017. Contributions to the DC section also ended with effect from that date.

ITV Pension Scheme Limited (a wholly owned subsidiary of ITV plc) is the corporate trustee and manages the DB and DC assets, which are held under trust separately from the Company. Members of the trustee board are formally appointed as directors of ITV Pension Scheme Limited. There are nine directors including the chairman — fve appointed by the Company and four nominated by the members. The current chairman’s tenure came to an end at the end of December and a replacement is currently being recruited. There is also a vacancy for another Company appointed director. The trustee board has four committees: Investment, Audit and Operations, DC, and Corporate Affairs. The Corporate Affairs Committee is convened as and when appropriate for dealing with any corporate activities that may arise.

The trustee board and each committee hold regular meetings throughout the year at which key issues and more routine business matters are dealt with. A budget is agreed each year. The trustee board has a risk register, a conflicts of interest policy and a register of interests policy, which are reviewed regularly.

It is the responsibility of the trustee to have in place appropriate training for its directors and effective committee structures. The trustee directors receive regular training throughout the year and also have the support of various professional advisers. The Group pensions StatementsFinancial department helps identify training opportunities. Training is delivered both by attendance at external courses and with targeted training to support specifc agenda items at the start of each trustee board meeting. Where appropriate, longer training sessions are organised. Comprehensive records are kept of all training completed by each trustee director. The trustee board completes regular assessments of its advisers.

The chairman confrms in an annual statement that the trustee meets its legal duties in relation to the DC section as required under the Pensions Regulator’s Code of Practice 13.

Full valuations are carried out every three years. The latest completed actuarial valuation of all three sections of the main DB scheme was carried out as at 1 January 2014. The trustee of the Scheme is undertaking actuarial valuations as at 1 January 2017 and the outcome is expected before the end of March 2018.

ITV Defned Contribution Plan (the “Plan’): The new trust based Plan was established to accept contributions from 1 March 2017 for ex-DB members and DC members who transferred from the ITV Pension Scheme. In addition, pure DC assets previously built up in the ITV Pension Scheme were transferred to the Plan during March 2017.

ITV DC Trustee Limited (a wholly owned subsidiary of ITV plc) is a corporate trustee and manages the DC assets, which are held under trust information Additional separately from the Company. Members of the trustee board are formally appointed as directors of ITV DC Trustee Limited. There are fve directors including the chairman – three appointed by the Company and two nominated by the members. There is currently a selection exercise taking place for the two member-nominated vacancies. It is the responsibility of the trustee to have in place appropriate training for its directors.

The governance framework for managing the Plan and developing the board is in line with that in place for the ITV Pension Scheme.

Work is in progress to enable the chair to be in a position to confrm in an annual statement that the trustee meets its legal duties in relation to the DC section as required under the Pensions Regulator’s Code of Practice 13.

101 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Directors’ Report continued

Ulster Television Pension and Assurance Scheme (the “Scheme”): The Scheme provides DB benefts. It closed to new members in 2002 but is still open to future accrual.

Following the UTV acquisition in 2016, responsibility for managing the Scheme has moved to the Group pensions department and it was decided to strengthen the governance of the Scheme by replacing the existing individual trustee structure with a corporate trustee – UTV Pension Scheme Limited (a wholly owned subsidiary of ITV plc). The trustee manages the DB assets, which are held under trust separately from the Company. Members of the trustee board are formally appointed as directors of UTV Pension Scheme Limited. There are fve directors including the chairman — three appointed by the Company (including a professional trustee as chairman) and two nominated by the members. It is the responsibility of the trustee to have in place appropriate training for its directors.

The governance framework for managing the Scheme and developing the board is being enhanced to be in line with that in place for the ITV Pension Scheme. Full valuations are carried out every three years. The latest completed actuarial valuation was carried out as at 1 July 2014. The trustee of the Scheme is undertaking an actuarial valuation as at 1 July 2017 and the preliminary results were agreed in principle at the end of 2017 and the valuation is expected to be fnalised before the end of March 2018. The trustee board has adopted the Pensions Regulator’s integrated risk management framework – taking a holistic approach and looking at how risks around the employer covenant, funding and investment strategy are all linked and interdependent.

ITV Auto-enrolment Pension Plan (the “Plan”): Since 2013, employers within the Group have been required to enrol all eligible individuals into a pension scheme automatically. This applies to all eligible individuals who are contracted to work for us, regardless of their contract type or tax status (i.e. it applies to workers and not simply employees). Eligible individuals are enrolled into the ITV Auto-enrolment Pension Plan. The plan is currently provided using a master trust arrangement run by NOW:Pensions with an independent board of trustee directors. This plan is currently under review.

Pension Scheme indemnities: Qualifying pension scheme indemnity provisions, as defned in Section 235 of the Companies Act 2006, were in force for the fnancial year ended 31 December 2017 and remain in force for the beneft of each of the directors of ITV Pension Scheme Limited, ITV DC Trustee Limited and UTV Pension Scheme Limited. These indemnity provisions cover, to the extent permitted by law, certain losses or liabilities incurred as a director or offcer of ITV Pension Scheme Limited, ITV DC Trustee Limited and UTV Pension Scheme Limited.

Greenhouse gas emissions ITV is required to report annually on the quantity of carbon dioxide equivalent emissions in tonnes emitted as a result of activities for which it is responsible. All data for the fnancial year ended 31 December 2017 is disclosed below for direct (gas, vehicle fuel, fuel oils and refrigerants consumption) and indirect (electricity consumption) emissions.

Indicator 2017 2016

Total gross CO2e emissions 22,321 (tCO2e) 26,984 (tCO2e)

Scope 1: Direct emissions 6,684 (tCO2e) 7,793 (tCO2e)

Scope 2: Indirect emissions 15,637 (tCO2e) 19,191 (tCO2e) Total Revenue £3,657m £3,527m

Emissions per unit/£m revenue 6.1 (tCO2e) 7.7 (tCO2e)

Source: Mitie Energy analysis of ITV data. The emissions data covers our global operations for which we have operational control. We use the GHG Protocol Corporate Accounting and Reporting Standard and the latest conversion factors from the Department for Business, Energy & Industrial Strategy to calculate emissions in tonnes of carbon dioxide equivalents. 33% of our data set is based on estimated data. Estimates are calculated from previous consumption trends and published benchmarks.

In 2017, the Company’s greenhouse gas emissions reduced by 17% compared to the previous year. As 90% of our greenhouse gas emissions are generated within our UK operations, this is where we focus our efforts. We continued to replace ageing infrastructure with more effcient plant, optimise our building management software systems and replace lighting systems with more effcient LED technology. The amount of diesel purchased for fleet vehicles also decreased, which was due in part to the purchase of some Plug-in Hybrid Electric Vehicles for our fleet.

Further information can be found on our Corporate Responsibility website.

www.itvplc.com/responsibility

102 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Directors’ Report Strategic Report

Health and safety The health and safety of our employees, contractors and those participating in our productions is always a high priority. The signifcant loss of human life as the result of a major incident on production has been identifed as a principal risk to the organisation. The Company’s professional Health and Safety team continues to develop and refne our management system to ensure it meets the specifc risk profle of the business and embeds the ownership of risk with business owners.

The key elements of our safety management system are: Process, Compass (our online presence), Education, Expertise, Monitoring

and Assurance. Governance

In 2017, we continued to build our education programme rolling out Leading Risk sessions with the leadership teams in ITV Studios UK and America, supported by a research project being undertaken in collaboration with the London School of Economics to give us a greater understanding of risk-taking beliefs and behaviours within our production business. This is the frst step in aligning our training programme to the Studios Label model to ensure ownership of risk in appropriate areas. See page 79 for more information.

We have developed and launched an online resource, Compass, to provide easily accessible production focused health and safety advice on the most common health and safety risks managed by our productions.

To enable us to review the effectiveness of our processes and overall approach to production safety, we are using new methodology to engage with the business, building our understanding of the effectiveness of safety management, enabling us to continually improve and refne our approach.

We will build on this in 2018 across our business and will continue to underpin our health and safety management system with three key principles

• People are the solution StatementsFinancial • Safety is about positive outcomes • Safety is a moral responsibility

Performance Indicators – UK 2017 2016

Staff Non Staff Total Staff Non Staff Total Lost time accidents reported under RIDDOR* 1 1 2 4 1 5 Specifed injuries reported under RIDDOR 2 7 9 2 2 4

Performance indicators – international

Australia France Germany Talpa USA Finland Norway Sweden Denmark Italy Serious Injuries sustained at work by employees 2017 0 0 1 0 1 1 0 1 0 0 or people directly involved in our activities 2016 0 0 0 0 3 0 0 0 0 n/a

* Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 information Additional

Insurance and indemnities The Company maintains liability insurance for its Directors and offcers that is renewed on an annual basis. The Company has also entered into deeds of indemnity with its Directors and other senior executives. A copy of the indemnity can be found on our website.

www.itvplc.com/investors/governance

103 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Directors’ Report continued

Listing rule 9.8.4 disclosures There are no disclosures to be made other than that the trustee of the Employees’ Beneft Trust (EBT) waived its rights to receive dividends on shares it holds which do not relate to restricted shares held under the ITV Deferred Share Award Plan.

Political contributions It is the Company’s policy not to make cash contributions to any political party. However, within the normal activities of the Company’s national and regional news-gathering operations there may be occasions when an activity might fall within the broader defnition of ‘political expenditure’ contained within the Companies Act 2006. Shareholder authority for such expenditure was given at the 2017 AGM. However, during 2017 the Group made no payments falling within this defnition (2016: nil).

Report and accounts disclosures Financial risk management: The Directors have carried out a robust assessment of the principal risks facing the Company, including in relation to its business model, future performance, solvency and liquidity. Details of our risks and associated mitigations, together with details of our approach to risk management, are set out on pages 50 to 57.

Note 4.3 to the accounts on page 166 gives details of the Group’s fnancial risk management policies and related exposures. This note is incorporated by reference and deemed to form part of this report.

Future developments: Our strategy is set out in the Strategic Report.

Going concern: The going concern statement is set out on page 120. This note is incorporated by reference and deemed to form part of this report.

Subsequent events: There are no post balance sheet events to report.

Research and development: Relevant information is set out in the Strategic Report.

Share capital Issued: At the date of this report, there were 4,025,409,194 ordinary shares of 10 pence each in issue, all of which are fully paid up and quoted on the London Stock Exchange.

Purchase of own shares: The Directors have the authority to purchase up to 402.5 million of the Company’s ordinary shares. The authority remains valid until the AGM in 2018 or 10 August 2018, if earlier.

Restrictions: There are no restrictions on the transfer of ordinary shares in the capital of the Company other than those which may be imposed by law from time to time. In accordance with the Disclosure Guidance and Transparency Rules (DTRs), Persons Discharging Managerial Responsibility are required to seek approval to deal in ITV shares. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and/or voting rights.

Rights: The rights attaching to the Company’s ordinary shares are set out in the Articles of Association.

Share schemes: Details of employee share schemes are set out in note 4.7 on page 174. The Company has an EBT funded by loans to acquire shares for the potential beneft of employees. Details of shares held by the EBT at 31 December 2017 are set out on page 176. During the year shares have been released from the EBT in respect of share schemes for employees. The trustee of the EBT has the power to exercise all voting rights in relation to any investment (including ordinary shares) held within the EBT.

104 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Directors’ Report Strategic Report

Substantial shareholders Information regarding interests in voting rights provided to the Company pursuant to the DTRs is published on a Regulatory Information Service and on the Company’s website.

As at 28 February 2018, the information in the table below had been received, in accordance with DTR5, from holders of notifable interests (voting rights) in the Company’s issued share capital. It should be noted that these holdings are likely to have changed since notifed to the Company. However, notifcation of any change is not required until the next applicable threshold is crossed. Governance

Nature of Total number Nature of % interest interests of shares % of interest interest in fnancial in fnancial or interests in shares in shares instruments instruments in shares The Capital Group Companies Inc. 10.05% Indirect – – 404,675,342 Liberty Global Incorporated Limited – Indirect 9.90% Loaned shares 398,515,510 0.05% Securities lending BlackRock Inc. 6.82% Indirect 0.72% Contract for difference 306,303,502 Amerprise Financial, Inc and its group 5.08% Indirect 0.045% Equities swap 206,179,898 The Goldman Sachs Group 0.04% Indirect 0.82% Securities Lending 843,943,939 20.11% Swap (cash), Contract for difference (cash), over the counter option (physical or cash)

The number of shares is based on announcements made by each relevant shareholder using the Company’s issued share capital at that date. Financial StatementsFinancial Additional information Additional

105 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Governance

Directors’ Report continued

The Directors consider that the Annual Report and Accounts, taken as a whole, The Directors are responsible for preparing the Annual Report and the Group is fair, balanced and understandable and and parent company fnancial statements in accordance with applicable law and provides the information necessary for regulations. Company law requires the Directors to prepare Group and parent shareholders to assess the Company’s company fnancial statements for each fnancial year. Under that law they are and the Group’s position and performance, required to prepare the Group fnancial statements in accordance with IFRSs as business model and strategy. Each of the adopted by the EU and applicable law and have elected to prepare the parent company Directors, whose names and functions are fnancial statements in accordance with UK Accounting Standards, including FRS 101 listed on pages 62 and 63, confrm that, (Reduced Disclosure Framework). to the best of their knowledge: Under company law, the Directors must not approve the fnancial statements unless • the Group accounts, which have been they are satisfed that they give a true and fair view of the state of affairs of the Group prepared in accordance with IFRSs and parent company and of their proft or loss for that period. In preparing each of as adopted by the EU, give a true and the Group and parent company fnancial statements, the Directors are required: fair view of the assets, liabilities, fnancial position and proft of the Group; and • To select suitable accounting policies and then apply them consistently • the Directors’ Report includes a fair review • To make judgements and estimates that are reasonable and prudent of the development and performance of • For the Group fnancial statements, to state whether they have been prepared the business and the position of the Group, in accordance with IFRSs as adopted by the EU together with a description of the principal • For the parent company fnancial statements, state whether applicable risks and uncertainties that it faces. UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company fnancial statements In accordance with Section 418 of the • To prepare the fnancial statements on the going concern basis unless it is Companies Act 2006, the Directors confrm inappropriate to presume that the Group and the parent company will continue that, so far as they are each aware, there is in business. no relevant audit information of which the Company’s auditor is unaware; and each The Directors are responsible for keeping adequate accounting records that are Director has taken all steps that they suffcient to show and explain the parent company’s transactions and disclose with ought to have taken as a Director in order reasonable accuracy at any time the fnancial position of the parent company and to make themselves aware of any relevant enable them to ensure that its fnancial statements comply with the Companies Act audit information and to establish that 2006. They are responsible for such internal control as they determine is necessary the Company’s auditor is aware of to enable the preparation of the fnancial statements that are free from material that information. misstatement, whether due to fraud or error. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the The Board has conducted a review of Group and to prevent and detect fraud and other irregularities. Under applicable law the effectiveness of the Group’s systems and regulations, the Directors are also responsible for preparing a Strategic Report, of internal controls for the year ended Directors’ Report, Annual Remuneration Report and Corporate Governance Statement 31 December 2017. In the opinion of the that comply with that law and those regulations. Board, the Company has complied with the internal control requirements of the The Directors are responsible for the maintenance and integrity of the corporate UK Corporate Governance Code throughout and fnancial information included on the Company’s website. Legislation in the UK the year, maintaining an ongoing process for governing the preparation and dissemination of fnancial statements may differ identifying, evaluating and minimising risk. from legislation in other jurisdictions.

By order of the Board

Ian Griffths Chief Operating Offcer and Group Finance Director 28 February 2018 ITV plc Registered Number: 4967001

106 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Financial Statements Strategic Report

In this The financial statements have been presented in a style that attempts to make them less complex section and more relevant to shareholders. We have grouped the note disclosures into five sections: ‘Basis of Preparation’, ‘Results for the Year’, ‘Operating Assets and Liabilities’, ‘Capital Structure and Financing Costs’ and ‘Other Notes’. Each section sets out the accounting policies applied in producing the relevant notes, along with details of any key judgements and estimates used. The purpose of this format is to provide readers with a clearer understanding of what drives financial performance of the Group. The aim of the text in boxes is to provide commentary on each section, or note, in plain English. Governance

Keeping Notes to the financial statements provide information required by statute, accounting standards or it simple Listing Rules to explain a particular feature of the financial statements. The notes that follow are a part of the financial statements and will also provide explanations and additional disclosure to assist readers’ understanding and interpretation of the Annual Report and the financial statements.

Contents Independent Auditor’s Report to the members of ITV plc only 108 Primary Statements 114 Consolidated Income Statement 114 Consolidated Statement of Comprehensive Income 115 Consolidated Statement of Financial Position 116 Financial Statements Consolidated Statement of Changes in Equity 117 Consolidated Statement of Cash Flows 119 Section 1: Basis of Preparation 120 Section 2: Results for the Year 124 2.1 Profit before tax 124 2.2 Exceptional items 129 2.3 Taxation 131 2.4 Earnings per share 134 2.5 Discontinued operations 136 Section 3: Operating Assets and Liabilities 137 3.1 Working capital 137 3.2 Property, plant and equipment 141 3.3 Intangible assets 143 3.4 Acquisitions 148 3.5 Investments 151 3.6 Provisions 152 3.7 Pensions 153 information Additional Section 4: Capital Structure and Financing Costs 162 4.1 Net debt 162 4.2 Borrowings and finance leases 164 4.3 Managing market risks: derivative financial instruments 166 4.4 Net financing costs 170 4.5 Fair value hierarchy 171 4.6 Equity 173 4.7 Share-based compensation 174 Section 5: Other Notes 176 5.1 Related party transactions 176 5.2 Contingent assets and liabilities 177 5.3 Subsidiaries exempt from audit 178 ITV plc Company Financial Statements 179 Notes to the ITV plc Company Financial Statements 181

107 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Independent Auditor’s Report to the members of ITV plc

1. Our opinion is unmodified We have audited the financial statements of ITV plc (‘the Company’) for the year ended 31 December 2017, which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows, company balance sheet, company statement of changes in equity, and the related notes, which include the accounting policies. In our opinion: • the financial statements give a true and fair view of the state of the Group's and of the parent company's affairs as at 31 December 2017 and of the Group's profit for the year then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 'Reduced Disclosure Framework'; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were appointed as auditor by the Directors in December 2003 prior to the Company becoming the parent company of the now ITV Group on 2 February 2004. The period of total uninterrupted engagement for the listed ITV Group is 14 financial years ended 31 December 2017. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. 2. Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

108 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Independent Auditor’s Report to the members of ITV plc

Strategic Report

The risk Our response Net Advertising Revenue (‘NAR’) £1,591 million (2016: £1,672 million) Risk vs 2016: ◄ ► Refer to page 75 (Audit and Risk Committee report), page 124 (accounting policy) and pages 125 and 126 (financial disclosures) Subjective estimate Our procedures included: The majority of ITV’s advertising revenue (‘NAR’) is subject to regulation • Control operation: testing of controls, assisted by our own IT under Ofcom’s Contract Rights Renewal system (‘CRR’). CRR works by specialists, including those over: segregation of duties, input of ensuring that the annual share of TV advertising that will be placed annual deal terms with agencies, input of individual campaigns’ with ITV by each advertising agency can change in relation to the

terms and pricing, comparison of those terms and pricing data Governance viewing figures for commercial television that it delivers. The CRR against the related contracts with advertising agencies; link to system, the pricing of the annual contractual arrangements with transmission/viewer data; and the system generated calculation advertising agencies and the details of each advertising campaign, of deal debt for each campaign. together with the related processes and controls, are complex and • Assessing estimate: challenging the year end deal debt positions involve estimation. based on comparison with customers’ correspondence and agreed In particular, the complexity of the pricing mechanism means it is terms of business. possible for a difference to arise between the price received by ITV • Test of detail: confirming that the transmissions occurred prior for an advertising campaign and the value it delivered, mainly as a to invoices being raised and revenue recognised by agreeing the result of the actual viewing figures differing from the expected level transmissions to the corresponding spots. for the campaign. Where the Group has over-delivered viewers, this is • Assessing disclosures: we also assessed the adequacy of the referred to as a ‘deal credit’, or a ‘deal debt’ where delivery has fallen Group's disclosures in respect of the accounting policies on short. Rather than the price paid for that campaign being adjusted at revenue recognition. the end of the campaign, these differences are noted for each agency Our results: and then taken into account when agreeing either future campaigns or the annual contract. A net deal debt position with an agency is • From the evidence we obtained, we found the resulting amount recorded in ITV’s accounts, as a liability. Net deal credit positions are of recorded NAR and the estimated level of deal debt position

not recognised. liabilities to be acceptable (2016: acceptable). Financial Statements NAR is therefore considered a significant risk due to: • The number and complexity of contractual agreements with advertising agencies; • The complexity of the systems and processes of control used to record revenue; and, • The level of estimation involved in determining any deal debt liability at the period end.

Additional information Additional

109 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Independent Auditor’s Report to the members of ITV plc continued

The risk Our response Other revenue streams (‘Non-NAR revenue’) £2,066 million (2016: £1,855 million) Risk vs 2016: ◄ ► Refer to page 75 (Audit and Risk Committee report), page 124 (accounting policy) and pages 125 and 126 (financial disclosures) Complex contract accounting Our procedures included: Non-NAR revenue includes revenue from: programme production • Assessing principles: we considered the Group’s revenue and the sale of programme rights within the Studios segment; recognition policies against the relevant accounting standards. transmission supply arrangements and the Online, Pay & Interactive • Test of detail: on a sample basis we assessed revenue contracts division within the Broadcast segment. entered into during the year, and considered whether revenue had Recognition of revenue is driven by the specific terms of the related been recognised in accordance with the contractual terms in the contracts and is considered to be a significant risk as the terms of correct accounting period, given the requirements of the relevant the contracts are varied and can be complex, with the result that accounting standard. accounting for the revenue generated in any given period can require • Assessing disclosures: we also assessed the adequacy of the individual consideration and judgement. Due to the contractual Group’s disclosures in respect of the accounting policy on nature of these revenue streams, the focus of our work is on the revenue recognition. risks associated with significant one-off contracts. Our findings: • From the evidence we obtained we found the resulting amount of recorded Non-NAR to be acceptable (2016: acceptable).

Gross defined benefit pension scheme obligations £3,987 million (2016: £4,200 million) Risk vs 2016: ◄ ► Refer to page 74 (Audit and Risk Committee report), page 153 (accounting policy) and pages 153 to 161 (financial disclosures) Subjective valuation Our procedures included: Significant estimates are made in determining the key assumptions • Benchmarking assumptions: challenging the key financial used in valuing the Group’s post-retirement defined benefit obligations. assumptions applied in determining the Group’s gross pension When making these assumptions, the Directors take independent obligations, being the discount rate, inflation rate and mortality/life actuarial advice relating to their appropriateness. expectancy, with the support of our own actuarial specialists. This In addition, the Group has a longevity swap, the valuation of which is included a comparison of these key assumptions against externally complex being dependent mortality and longevity experience. derived data. • Assessing application: assessing methodology applied to the The valuation of the gross defined benefit obligations and longevity longevity swap valuation and challenging underlying mortality swap are considered a significant risk given the quantum of the gross assumptions against externally derived data, with the support of pension obligation, the impact of the longevity swap on the net our own actuarial specialists. obligation position, and that a small change in assumptions can • Assessing disclosures: considering the adequacy of the Group’s have a material financial impact on the Group. disclosures in respect of the sensitivity of the gross defined benefit obligations to these assumptions. Our findings: • The results of our testing were satisfactory and we considered the valuation of the gross pension obligations and the longevity swap to be acceptable (2016: acceptable).

Recoverability of parent company’s investment in subsidiaries £2,191 million (2016: £1,861 million) Risk vs 2016: ◄ ► Refer to page 181 (accounting policy) and pages 183 (financial disclosures) Low risk, high value Our procedures included: The carrying amount of the parent company’s investments in • Test of detail: comparing the carrying amount of 100% of the subsidiaries represents 34% (2016: 29%) of the parent company’s investments balance (2016: 100%) with the relevant subsidiaries’ total assets. Their recoverability is not at a high risk of significant draft balance sheet to identify whether their net assets, being misstatement or subject to significant judgement. However, due an approximation of their minimum recoverable amount, were to their materiality in the context of the parent company financial in excess of their carrying amount and assessing whether those statements, this is considered to be the area that had the greatest subsidiaries have historically been profit-making. effect on our overall parent company audit. Our results: • We found the Group’s assessment of the recoverability of the investment in subsidiaries to be acceptable (2016: acceptable).

110 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Independent Auditor’s Report to the members of ITV plc Strategic Report

3. Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at £28 million (2016: £35 million), determined with reference to a benchmark of normalised Group profit before tax of £568 million (2016: £623 million) which excludes the pre-paid employment-linked remuneration charge, the exceptional bad debt provision in relation to the contract receivables and the non-recurring element of the property project costs disclosed in note 2.2, of which materiality represents 5% (2016: 5.5%). Materiality for the parent company financial statements as a whole was set as £27 million (2016: £34 million) determined with reference to the benchmark of the Company’s total assets, of which it represents 0.4% (2016: 0.5%).

We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £1.4 million (2016: £1.7 million), Governance in addition to other identified misstatements that warranted reporting on qualitative grounds. Scoping and coverage

eene Profit before tax tal assets Group audited 81% Group audited 94% Group audited 90% Specified risk-based Specified risk-based Specified risk-based audit procedures 7% audit procedures 1% audit procedures 2% Out of scope 12% Out of scope 5% Out of scope 8%

The Group’s principal operations are in the United Kingdom. The Group audit team performed the audit of the core UK operations (comprising Broadcast and Online, the UK Studios, Global Entertainment and the central functions) as if they were a single aggregated set of financial information using materiality of £20 million (2016: £25 million). Talpa Media B.V. – a significant component of the Group in the Netherlands – was subject to an audit for Group reporting purposes. The Group audit team instructed the component auditor as to the significant areas to be covered, including the relevant risks described above and the determination of the information to be reported back. Financial Statements Specified audit procedures were performed by other component auditors, as instructed by the Group audit team, on two entities in the US included in our scope based on the relative size of their operations. The Group audit team set the materiality of £5 million (2016: £5 million) for both the audit of the component and the specified audit procedures. The Group audit team performed procedures on the itemsexcluded from normalised Group profit before tax. The Group audit team held several telephone conference meetings with the component audit teams to assess the audit risk and strategy. The Group audit team also visited the component in the Netherlands. At this visit and in these meetings, the findings reported to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditor. Together, the above audit and these specified audit procedures covered 88% (2016: 90%) of Group revenue, 95% (2016: 89%) of Group profit before taxation; and 92% (2016: 90%) of total Group assets. 4. We have nothing to report on going concern We are required to report to you if: • we have anything material to add or draw attention to in relation to the Directors' statement in note 1 on page 120 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company's use of that basis for a period of at least twelve months from the date of approval of the financial statements; or

• the related statement under the Listing Rules set out on page 106 is materially inconsistent with our audit knowledge. information Additional We have nothing to report in these respects.

111 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Independent Auditor’s Report to the members of ITV plc continued

5. We have nothing to report on the other information in the Annual Report The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solelyon that work, we have not identified material misstatements in the other information. Strategic Report and Directors’ Report Based solely on our work on the other information: • we have not identified material misstatements in the Strategic Report and the Directors’ Report; • in our opinion the information given in those reports for the financial year is consistent with the financial statements; and • in our opinion those reports have been prepared in accordance with the Companies Act 2006. Directors’ Remuneration Report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the ompaniesC Act 2006. Disclosures of principal risks and longer-term viability Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to: • the Directors’ confirmation within the Viability Statement on pages 58 and 59 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; • the risks and uncertainties on pages 52 to 57 disclosures describing these risks and explaining how they are being managed and mitigated; and • the Directors’ explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Under the Listing Rules, we are required to review the Viability Statement. We have nothing to report in this respect. Corporate governance disclosures We are required to report to you if: • we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the Directors’ statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or • the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in these respects. 6. We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. We have nothing to report in these respects.

112 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Independent Auditor’s Report to the members of ITV plc

Strategic Report

7. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 106, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. Governance Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. Irregularities – ability to detect We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience, through discussion with the Directors and other management (as required by auditing standards). We had regard to laws and regulations in areas that directly affect the financial statements including financial reporting (including related company legislation) and taxation legislation. We considered the extent of compliance with those laws and regulations as part of our procedures on the related financial statements items. In addition, we considered the impact of laws and regulations in the specific areas of broadcasting regulations recognising the nature of the

Group’s activities. With the exception of any known or possible non-compliance, and as required by auditing standards, our work in respect of Financial Statements these was limited to enquiry of the Directors and other management and inspection of regulatory and legal correspondence. We considered the effect of any known or possible non-compliance in these areas as part of our procedures on the related financial statements items. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. As with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. 8. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Paul Sawdon (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Additional information Additional Chartered Accountants 15 Canada Square London E14 5GL 28 February 2018

113 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Consolidated Income Statement

2017 2016 For the year ended 31 December Note £m £m Revenue 2.1 3,132 3,064 Operating costs (2,577) (2,460) Operating profit 555 604

Presented as: Earnings before interest, tax and amortisation (EBITA) before exceptional items 2.1 810 857 Operating exceptional items 2.2 (153) (164) Amortisation and impairment 3.3 (102) (89) Operating profit 555 604

Financing income 4.4 4 2 Financing costs 4.4 (54) (53) Net financing costs 4.4 (50) (51) Share of losses of joint ventures and associated undertakings 3.5 (4) – Loss on sale of non-current assets (exceptional items) 2.2 (1) – Profit before tax 500 553 Taxation 2.3 (87) (100) Profit from continuing operations 413 453 Loss after tax for the period from discontinued operation 2.5 – (1) Profit for the year 413 452

Profit attributable to: Owners of the Company 409 448 Non-controlling interests 4.6.6 4 4 Profit for the year 413 452

Earnings per share

Basic earnings per share 2.4 10.2p 11.2p Diluted earnings per share 2.4 10.2p 11.1p Earnings per share from continuing operations Basic earnings per share 2.4 10.2p 11.2p Diluted earnings per share 2.4 10.2p 11.1p

114 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Primary Statements

Consolidated Statement of Comprehensive Income Strategic Report

2017 2016 For the year ended 31 December Note £m £m Profit for the year 413 452

Other comprehensive income: Items that are or may be reclassified to profit or loss (Loss)/gain on revaluation of available-for-sale financial assets 4.6.4 (1) 1 Net loss on cash flow hedges 4.6.3 (3) (2) Exchange (loss)/gain on translation of foreign operations (net of hedging) 4.6.3 (32) 46 Governance Items that will never be reclassified to profit or loss Remeasurement gains/(losses) on defined benefit pension schemes 3.7 172 (248) Income tax (charge)/credit on items that will never be reclassified 2.3 (39) 40 Other comprehensive income/(loss) for the year, net of income tax 97 (163) Total comprehensive income for the year 510 289

Total comprehensive income attributable to: Owners of the Company 506 285 Non-controlling interests 4.6.6 4 4 Total comprehensive income for the year 510 289 Financial Statements Additional information Additional

115 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Consolidated Statement of Financial Position

2017 2016 As at 31 December Note £m £m Non-current assets Property, plant and equipment 3.2 256 244 Intangible assets 3.3 1,645 1,624 Investments in joint ventures, associates and equity investments 3.5 74 76 Derivative financial instruments 4.3 10 1 Distribution rights 3.1.2 19 31 Defined benefit pension surplus 3.7 16 – Other pension asset 3.7 38 39 Deferred tax asset 2.3 31 17 2,089 2,032 Current assets Programme rights and other inventory 3.1.1 570 406 Trade and other receivables due within one year 3.1.3 514 526 Trade and other receivables due after more than one year 3.1.3 27 39 Trade and other receivables 541 565 Current tax receivable 19 11 Derivative financial instruments 4.3 6 8 Cash and cash equivalents 4.1 126 561 1,262 1,551 Current liabilities Borrowings 4.2 (76) (165) Derivative financial instruments 4.3 (2) (3) Trade and other payables due within one year 3.1.4 (1,029) (960) Trade payables due after more than one year 3.1.5 (68) (57) Trade and other payables (1,097) (1,017) Current tax liabilities (86) (76) Provisions 3.6 (16) (19) (1,277) (1,280)

Net current (liabilities)/assets (15) 271

Non-current liabilities Borrowings 4.2 (982) (1,035) Derivative financial instruments 4.3 (1) (9) Defined benefit pension deficit 3.7 (137) (367) Deferred tax liabilities 2.3 (111) (70) Other payables 3.1.5 (106) (63) Provisions 3.6 (7) (4) (1,344) (1,548) Net assets 730 755

Attributable to equity shareholders of the parent company Share capital 4.6.1 403 403 Share premium 4.6.1 174 174 Merger and other reserves 4.6.2 199 221 Translation reserve 4.6.3 41 79 Available-for-sale reserve 4.6.4 6 7 Retained earnings 4.6.5 (138) (162) Total equity attributable to equity shareholders of the parent company 685 722 Non-controlling interests 45 33 Total equity 730 755

The accounts were approved by the Board of Directors on 28 February 2018 and were signed on its behalf by: Ian Griffiths Chief Operating Officer and Group Finance Director

116 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Primary Statements

Consolidated Statement of Changes in Equity Strategic Report

Attributable to equity shareholders of the parent company Merger Available- Non- Share Share and other Translation for-sale Retained controlling Total capital premium reserves reserve reserve earnings Total interests equity Note £m £m £m £m £m £m £m £m £m Balance at 1 January 2017 403 174 221 79 7 (162) 722 33 755 Total comprehensive income/(loss) for the year Profit for the year – – – – – 409 409 4 413 Governance Other comprehensive income/(loss) Revaluation of available-for-sale financial assets – – – – (1) – (1) – (1) Net loss on cash flow hedges – – – (3) – – (3) – (3) Exchange differences on translation of foreign operations (net of hedging) – – – (32) – – (32) – (32) Remeasurement gain on defined benefit pension schemes 3.7 – – – – – 172 172 – 172 Income tax charge on other comprehensive income 2.3 – – – – – (39) (39) – (39) Total other comprehensive (loss)/income – – – (35) (1) 133 97 – 97 Total comprehensive (loss)/income for the year – – – (35) (1) 542 506 4 510 Transactions with owners, recorded directly in equity Contributions by and distributions Financial Statements to owners Equity dividends – – – – – (494) (494) (4) (498) Movements due to share-based compensation 4.7 – – – – – 12 12 – 12 Purchase of own shares via employees’ benefit trust 4.7 – – – – – (36) (36) – (36) Total transactions with owners – – – – – (518) (518) (4) (522) Changes in non-controlling interests (a) 3.4 – – (22) (3) – – (25) 12 (13) Balance at 31 December 2017 4.6 403 174 199 41 6 (138) 685 45 730

(a) Movements reported in merger and other reserves include a put option for the acquisition of non-controlling interests.

Additional information Additional

117 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Consolidated Statement of Changes in Equity continued

Attributable to equity shareholders of the parent company Merger Available- Non- Share Share and other Translation for-sale Retained controlling Total capital premium reserves reserve reserve earnings Total interests equity Note £m £m £m £m £m £m £m £m £m Balance at 1 January 2016 403 174 221 35 6 275 1,114 33 1,147 Total comprehensive income/(loss) for the year Profit for the year – – – – – 448 448 4 452 Other comprehensive income/(loss) Revaluation of available-for-sale financial assets – – – – 1 – 1 – 1 Net loss on cash flow hedges – – – (2) – – (2) – (2) Exchange differences on translation of foreign operations (net of hedging) – – – 46 – – 46 – 46 Remeasurement loss on defined benefit pension schemes 3.7 – – – – – (248) (248) – (248) Income tax charge on other comprehensive income 2.3 – – – – – 40 40 – 40 Total other comprehensive income/(loss) – – – 44 1 (208) (163) – (163) Total comprehensive income/(loss) for the year – – – 44 1 240 285 4 289 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Equity dividends – – – – – (663) (663) (4) (667) Movements due to share-based compensation 4.7 – – – – – 10 10 – 10 Tax on items taken directly to equity 2.3 – – – – – (4) (4) – (4) Purchase of own shares via employees’ benefit trust 4.7 – – – – – (20) (20) – (20) Total transactions with owners – – – – – (677) (677) (4) (681) Balance at 31 December 2016 4.6 403 174 221 79 7 (162) 722 33 755

118 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Primary Statements

Consolidated Statement of Cash Flows Strategic Report

2017 2016 For the year ended 31 December Note £m £m £m £m Cash flows from operating activities Cash generated from operations before exceptional items 2.1 795 870 Cash flow relating to operating exceptional items: Operating exceptional items 2.2 (153) (164) Increase in exceptional payables (18) 71 Decrease in exceptional prepayments and other receivables 45 66 Cash outflow from exceptional items (126) (27) Governance Operating cash flow from discontinued operation 2.5 – (6) Cash generated from operations 669 837 Defined benefit pension deficit funding (80) (80) Interest received 21 38 Interest paid on bank and other loans (59) (58) Net taxation paid (95) (90) (213) (190) Net cash inflow from operating activities 456 647

Cash flows from investing activities Acquisition of subsidiary undertaking, net of cash acquired 3.4 (35) (97) Acquisition of property, plant and equipment (46) (29) Acquisition of intangible assets (25) (15) Acquisition of investments (19) (41) Loans granted to associates and joint ventures (4) (2) Financial Statements Net proceeds from sale of assets held for sale 2.5 – 10 Net cash outflow from investing activities (129) (174)

Cash flows from financing activities Bank and other loans – amounts repaid (680) (655) Bank and other loans – amounts raised 465 1,177 Capital element of finance lease payments (4) (6) Equity dividends paid (494) (663) Dividends paid to minority interest (4) (4) Purchase of own shares via employees’ benefit trust (36) (20) Net cash outflow from financing activities (753) (171)

Net (decrease)/increase in cash and cash equivalents (426) 302

Cash and cash equivalents at 1 January 4.1 561 294 Reclassification of gilts to other pension assets 3.7 (39) – information Additional Effects of exchange rate changes and fair value movements (9) 4 Cash and cash equivalents at 31 December 4.1 126 561

119 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 1: Basis of Preparation

In this This section sets out the Group’s accounting policies that relate to the financial section statements as a whole. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. This section also shows new EU endorsed accounting standards, amendments and interpretations, and whether they are effective in 2017 or later years. We explain how these changes are expected to impact the financial position and performance of the Group.

The financial statements consolidate those of ITV plc (‘the Company’) and its subsidiaries (together referred to as the ‘Group’) and the Group’s interests in associates and jointly controlled entities. The Company is domiciled in the United Kingdom.

As required by European Union law (IAS Regulation EC 1606/2002), the Group’s financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (‘IFRS’), and approved by the Directors.

The financial statements are principally prepared on the basis of historical cost. Where other bases are applied, these are identified in the relevant accounting policy.

The parent company financial statements have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS 101’).

Going concern At 31 December 2017, the Group was in a financial net debt position with a positive gross cash balance. Even though the Group is in a net current liability position, its strong balance sheet and continued generation of significant free cash flows enables the Group to meet its obligations and has enabled further investment.

As a part of the going concern test, the Group reviews forecasts of the television advertising market to determine the impact on ITV’s liquidity position. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate within the level of its current available funding.

The Group also continues to focus on development of the non-advertising business, and evaluates the impact of further investment against the cash headroom of the business.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for at least 12 months from the date of this report. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

Subsidiaries, joint ventures, associates and available-for-sale investments Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity in order to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.

A joint venture is a joint arrangement in which the Group holds an interest under a contractual arrangement where the Group and one or more other parties undertake an economic activity that is subject to joint control. The Group accounts for its interests in joint ventures using the equity method. Under the equity method, the investment in the entity is stated as one line item at cost plus the investor’s share of retained post-acquisition profits and other changes in net assets.

An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. Significant influence is the power to participate in, but not control or jointly control, the financial and operating decisions of an entity. These investments are also accounted for using the equity method.

Investments where the Group concludes it does not have significant influence are deemed ‘available-for-sale’. These investments are held at fair value unless the investment is a start-up business, in which case it is valued at cost and assessed for impairment.

120 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 1: Basis of Preparation

Strategic Report

Current/non-current distinction Current assets include assets held primarily for trading purposes, cash and cash equivalents, and assets expected to be realised in, or intended for sale or use in, the course of the Group’s operating cycle. All other assets are classified as non-current assets.

Current liabilities include liabilities held primarily for trading purposes, liabilities expected to be settled in the course of the Group’s operating cycle and those liabilities due within one year from the reporting date. All other liabilities are classified as non-current liabilities. Governance Classification of financial instruments The financial assets and liabilities of the Group are classified into the following financial statement captions in the statement of financial position in accordance with IAS 39 ‘Financial Instruments’:

• Loans and receivables – separately disclosed as cash and cash equivalents and trade and other receivables; • Available-for-sale financial assets – measured at fair value through other comprehensive income; • Financial assets/liabilities at fair value through profit or loss – separately disclosed as derivative financial instruments in assets/liabilities and included in other payables (contingent consideration); and • Financial liabilities measured at amortised cost – separately disclosed as borrowings and trade and other payables.

Judgement is required when determining the appropriate classification of the Group’s financial instruments. Details on the accounting policies for measurement of the above instruments are set out in the relevant note. Where unconditional rights to set off financial instruments exist, the Group presents the relevant instruments net in the statement of financial position.

Recognition and derecognition of financial assets and liabilities The Group recognises a financial asset or liability when it becomes a party to the contract. Financial instruments Financial Statements are no longer recognised in the statement of financial position when the contractual cash flows expire or when the Group no longer retains control of substantially all the risks and rewards under the instrument.

Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits with a maturity of less than or equal to three months from the date of acquisition and cash held to meet certain finance lease commitments. The carrying value of cash and cash equivalents is considered to approximate fair value.

Foreign currencies The primary economic environment in which the Group operates is the UK and therefore the consolidated financial statements are presented in pounds sterling (‘£’).

Where Group companies based in the UK transact in foreign currencies, these transactions are translated into pounds sterling at the exchange rate on the transaction date. Foreign currency monetary assets and liabilities are translated into pounds sterling at the year end exchange rate. Where there is a movement in the exchange rate between the date of the transaction and the year end, a foreign exchange gain or loss is recognised in the income statement.

Hedge accounting is implemented on certain foreign currency firm commitments, for which the effective portion of information Additional any foreign exchange gains or losses is recognised in other comprehensive income (note 4.3).

Where a forward currency contract is used to manage foreign exchange risk and hedge accounting is not applied, any impact of movements in currency for both the forward currency contracts and the assets and liabilities is taken to the income statement.

Non-monetary assets and liabilities measured at historical cost are translated into pounds sterling at the exchange rate on the date of the transaction.

The assets and liabilities of Group companies outside of the UK are translated into pounds sterling at the year end exchange rate. The revenue and expenses of these companies are translated into pounds sterling at the average monthly exchange rate during the year. Where differences arise between these rates, they are recognised in the translation reserve within other comprehensive income.

121 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 1: Basis of Preparation continued

Exchange differences arising on the translation of the Group’s interests in joint ventures and associates are recognised in the translation reserve within other comprehensive income.

On disposal of a foreign subsidiary, an interest in a joint venture or an associate, the related translation reserve is released to the income statement as part of the gain or loss on disposal.

Accounting judgements and estimates The preparation of financial statements requires management to exercise judgement in applying the Group’s accounting policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the period in which the estimates are revised and in any future periods affected.

The areas involving a higher degree of estimation, judgement or complexity are set out below and in more detail in the related notes:

• Revenue recognition (note 2.1) • Business combinations (note 3.3 and note 3.4)

In addition to the above, the areas involving the most sensitive estimates and assumptions that are significant to the financial statements are set out below and in more detail in the related notes:

• Defined benefit pension (note 3.7) • Taxation (note 2.3)

New or amended EU endorsed accounting standards The table below represents new or amended EU endorsed accounting standards relevant to the Group’s results that are effective in 2017:

Accounting Standard Requirement Amendments to IAS 7 The amendments introduce an additional disclosure that will enable users of the ‘Statement of Cash Flows’ financial statements to evaluate changes in liabilities arising from financing activities. on Disclosure Initiative Amendments to IAS 12 The amendments clarify how to account for deferred tax assets related to debt ‘Income Taxes’ on recognition instruments measured at fair value. of deferred tax assets for unrealised losses Annual Improvements to Amendments to a number of IFRSs, one of which is effective in 2017; this amendment IFRS 2014 – 2016 cycle clarified the scope of IFRS 12, specifically the disclosure requirements for interests in subsidiaries, associates or joint ventures that are classified as held-for-sale.

Based on the Directors’ analysis, the amendments outlined above do not have a material impact on the Group’s financial position or performance for the year ended 31 December 2017.

EU endorsed accounting standards effective in future periods The Directors considered the impact on the Group of other new and revised accounting standards, interpretations or amendments that are currently endorsed but not yet effective. IFRS 15 and IFRS 9 are both effective for the period beginning 1 January 2018 and, while the Directors do not expect these standards to have a significant impact on the Group’s results, they highlight the conclusions from the impact assessment below.

IFRS 16 is effective for the period beginning 1 January 2019. The Directors have detailed the status of the impact assessment below.

122 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 1: Basis of Preparation

Strategic Report

IFRS 15 ‘Revenue from Contracts with Customers’ is effective 1 January 2018. IFRS 15 requires the Group to identify distinct promises in contracts with customers that qualify as ‘performance obligations’. The consideration receivable from customers must then be allocated between the performance obligations identified.

An assessment of the impact on all of the Group’s material revenue streams has been completed. The impact on the Group’s revenues and results is not material for either the Group or for the individual divisions, Broadcasting & Online and ITV Studios.

The changes to the current accounting policies on adoption of IFRS 15 require the Group to reclassify various costs Governance which are now deemed to be attributable to revenue within the income statement. The impact on the results for the year ending 2017, which is not considered material to the Group, either individually or collectively, will be:

Income statement account Impact NAR revenue Reduction of £11 million Other commercial income Reduction of £1 million Online, pay & interactive revenue Increase of £10 million Operating costs Reduction of £2 million

There is no impact on either profit or adjusted EBITA for the year for the Group or for an individual division.

The Directors adopted IFRS 15 on 1 January 2018 on a fully retrospective basis and will present, within the 2018 financial statements, a restatement of the comparative periods.

IFRS 9 ‘Financial Instruments’ is also effective 1 January 2018. IFRS 9 introduces new models for classification of financial assets and accounting for credit losses. Hedging rules have been amended to allow hedge accounting to be applied to more risks. Financial Statements The analysis of the impact focused on the following items:

• Classification and measurement of financial assets and liabilities; • Trade receivables impairment; and • Recognition of hedging instruments and on the type of hedging relationships. No material impacts were identified compared with the existing accounting treatment.

IFRS 16 ‘Leases’ is effective 1 January 2019. IFRS 16 will change lease accounting for lessees under operating leases. Such agreements will require recognition of an asset, representing the right to use the leased item, and a liability, representing future lease payments. Lease costs (such as property rent) will be recognised in the form of depreciation and interest, rather than as an operating cost.

The detailed assessment of impact on the Group’s performance is ongoing, with the current focus on the completeness of the lease data. During the early impact assessment, the Group has reviewed the current accounting for existing key agreements, including satellite, transponder and playout agreements, and concluded that those do not meet lease definition under the regulations of IFRS 16, and therefore should continue to be classified as service agreements as presented within these financial statements. information Additional

The adoption is likely to have a material impact on the presentation of the Group’s assets and liabilities, mainly due to property leases. Due to the quantity of leases under review, the Group has not substantially completed the assessment of lease contracts under the new accounting standard. Therefore, a quantification of the impact on the Group’s results cannot currently be estimated.

123 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 2: Results for the Year

In this This section focuses on the results and performance of the Group. On the following section pages, you will find disclosures explaining the Group’s results for the year, segmental information, exceptional items, taxation and earnings per share.

2.1 Profit Keeping This section analyses the Group’s profit before tax by reference to the activities before tax it simple performed by the Group and an analysis of key operating costs. Adjusted earnings before interest, tax and amortisation (EBITA) is the Group’s key profit indicator. This reflects the way the business is managed and how the Directors assess the performance of the Group. This section therefore also shows each division’s contribution to total revenue and adjusted EBITA.

Accounting policies Revenue recognition Revenue is stated exclusive of VAT and equivalent sales taxes, and comprises the sale of products and services to third parties. Judgement is required when determining the appropriate timing and amount of revenue that can be recognised, specifically around whether there is a firm contract and whether the service has been provided and if so, whether there is a fixed or reasonably determinable price that is reasonably certain to be collected. Complexity in advertising revenue recognition is driven by intricate automated and manual processes involved in measuring the value delivered to the customer. Revenue is recognised when the Group has transferred both the significant risks and rewards of ownership and control, and the amount of revenue can be measured reliably. Revenue recognition criteria for the Group’s key classes of revenue are as follows:

Applicable segment Class of revenue Recognition criteria Broadcast & Online Advertising (NAR) on transmission Video on Demand (VOD) as audience targets are met Sponsorship across the period of transmission of the sponsored programme or series Pay over the term of the contract or per subscriber or download Participation (Interactive as the service is provided or the event occurs and Brand Extensions) Studios Programme production on delivery of episode and acceptance by the customer Programme distribution rights when the contract is signed and content is available for exploitation Format and licences at the point in time when the licence is transferred and the customer is able to use and benefit from the licence or over the licence period if continued involvement of the Group is required Digital: archive on delivery of content (one-off) or over the contract period in a manner that reflects the flow of content delivered (top-up)

124 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 2: Results for the Year

Strategic Report

The results for the year aggregate these classes of revenue into four significant categories:

2017 2017 2016 2016 £m % of total £m % of total NAR Broadcast & Online 1,591 44% 1,672 47% Non-NAR Broadcast & Online 484 460

ITV Studios: Productions 1,307 1,089 Governance ITV Studios: Distribution 275 306 Total Non-NAR 2,066 56% 1,855 53% Total revenue from continuing operations 3,657 100% 3,527 100%

Segmental information Operating segments, which have not been aggregated, are determined in a manner that is consistent with how the business is managed and reported to the Board of Directors. The Board is regarded as the chief operating decision-maker. The Board considers the business primarily from an operating activity perspective. The reportable segments for the years ended 31 December 2017 and 31 December 2016 are therefore Broadcast & Online and ITV Studios, the results of which are outlined in the following tables:

Broadcast & Online ITV Studios* Consolidated 2017 2017 2017 £m £m £m Total segment revenue 2,075 1,582 3,657 Intersegment revenue (2) (523) (525) Financial Statements Revenue from external customers 2,073 1,059 3,132

Adjusted EBITA** 599 243 842

Broadcast & Online ITV Studios* Consolidated 2016 2016 2016 £m £m £m Total segment revenue 2,143 1,395 3,538 Intersegment revenue – (463) (463) Revenue from external customers including discontinued operations 2,143 932 3,075 Less: Discontinued operations (note 2.5) (11) – (11) Revenue from external customers 2,132 932 3,064

Adjusted EBITA including discontinued operations** 636 243 879 Less: Operating loss from discontinued operations (note 2.5) (6) – (6) Additional information Additional Adjusted EBITA** 642 243 885

* Revenue of £397 million (2016: £320 million) was generated in the US during the year; the US represented £330 million (2016:£346 million) of non-current assets at year end.

** Adjusted EBITA is before exceptional items and includes the benefit of production tax credits. It is shown after the elimination of intersegment revenue and costs. This measure represents the continuing operations.

The Group’s principal operations are in the United Kingdom. Revenue from external customers in the United Kingdom is £2,272 million (2016: £2,370 million), and revenue from external customers in other countries is £860 million (2016: £694 million). The Operating and Performance Review provides further detail on ITV’s international revenues. Intersegment revenue, which is earned on arm’s length terms, is mainly generated from the supply of ITV Studios programmes to Broadcast & Online for transmission primarily on the ITV network. This revenue stream is a measure that forms part of the Group’s strategic priority of building a strong international content business, as producing and retaining rights to the shows broadcast on the ITV network benefits the Group further from subsequent international content and format sales. In preparing the segmental information, centrally managed costs have been allocated between reportable segments on a methodology driven principally by revenue, headcount and building occupancy of each segment. This is consistent with the basis of reporting to the Board of Directors.

125 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 2: Results for the Year continued

There is one media buying agency (2016: one) acting on behalf of a number of advertisers that represent the Group’s major customers. This agency is the only customer that individually represents over 10% of the Group’s revenue. Revenue of approximately £561 million (2016: £552 million) was derived from this customer. This revenue is attributable to the Broadcast & Online segment. Broadcast & Online The Group operates the largest commercial family of channels in the UK and delivers content through multiple platforms. In addition to linear television broadcast, the Group delivers its content on the ITV Hub, catch up services on pay platforms, and through direct content deals. Content commissioned and scheduled by this segment is funded primarily by television advertising, where revenue is generated from the sale of audiences for advertising airtime and sponsorship. Other sources of revenue are from: online advertising; HD digital channels on pay platforms (e.g. Sky and Virgin); SDN revenue (which generates licence sales for DTT Multiplex A); and participation revenue (which includes interactive sales from competitions) and the ITV Choice subscription service in other countries. ITV Studios ITV Studios is the Group’s international content business, creating and producing programmes and formats that return and travel, namely drama, entertainment and factual entertainment. ITV Studios UK is the largest commercial producer in the UK and produces programming for the Group’s own channels, accounting for 66% of ITV main channel spend on commissioned programming (2016: 63%). Programming is also sold to other UK broadcasters such as the BBC, Channel 4 and Sky. ITV America is the leading unscripted independent producer of content in the US and is growing its scripted presence by increasing investment in high-profile dramas. ITV Studios also operates in six other international locations, being Australia, Germany, France, Italy, the Netherlands (primarily Talpa) and the Nordics, where content is produced for local broadcasters. This content is either locally created IP or formats that have been created elsewhere by ITV, primarily in the UK and the Netherlands. Global Entertainment and Talpa Global, ITV’s distribution businesses, license ITV’s finished programmes and formats and third-party content internationally. Within this business, we also finance productions both on and off ITV to acquire global distribution rights. Adjusted EBITA The Directors assess the performance of the reportable segments based on a measure of adjusted EBITA. The Directors use this measurement basis as it excludes the effect of transactions that could distort the understanding of the Group’s performance for the year and comparability between periods. See the Operating and Performance Review on pages 34 to 35 for the detailed explanation of the Group’s use of adjusted performance measures. A reconciliation from adjusted EBITA to profit before tax is provided as follows:

2017 2016 £m £m Adjusted EBITA 842 885 Production tax credits (32) (28) EBITA before exceptional items from continuing operations 810 857 Operating exceptional items (153) (164) Amortisation and impairment (102) (89) Net financing costs (50) (51) Share of losses of joint ventures and associated undertakings (4) – Loss on sale of non-current assets (exceptional items) (1) – Profit before tax from continuing operations 500 553

126 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 2: Results for the Year

Strategic Report

Cash generated from operations A reconciliation from profit before tax to cash generated from operations before exceptional items is as follows:

2017 2016 £m £m Cash flows from operating activities Profit before tax 500 553 Loss on sale of non-current assets (exceptional items) 1 – Share of losses of joint ventures and associated undertakings 4 – Governance Net financing costs 50 51 Operating exceptional items 153 164 Depreciation of property, plant and equipment 30 31 Amortisation and impairment 102 89 Share-based compensation and pension service costs 13 10 Increase in programme rights and other inventory, and distribution rights (94) (35) Decrease/(increase) in receivables 13 (56) Increase in payables 23 63 Movement in working capital (58) (28) Cash generated from operations before exceptional items 795 870

Operating costs Staff costs Staff costs before exceptional items can be analysed as follows:

2017 2016 £m £m Financial Statements Wages and salaries 358 336 Social security and other costs 55 46 Share-based compensation (see note 4.7) 12 10 Pension costs 24 27 Total staff costs 449 419 Less: staff costs allocated to productions (166) (147) FTEE staff costs (non-production) 283 272

Exceptional staff costs are disclosed separately in note 2.2.

The number of full-time equivalent employees (FTEE) (excluding short-term contractors and freelancers who are predominantly allocated to the cost of productions), calculated on a weighted average basis, during the year was:

2017 2016 Broadcast & Online 2,053 2,087 ITV Studios 4,002 4,034

6,055 6,121 information Additional

The decrease in full-time equivalent employees is primarily driven by redundancies in the organic business as a result of restructuring offset by the weighted average impact of acquisitions completed in 2017. Details of Directors’ emoluments, share options, pension entitlements and long-term incentive scheme interests are set out in the Remuneration Report. Listed Directors’ gains on share options for 2017 are set out in the ITV plc Company financial statements. Depreciation Depreciation in the year was £30 million (2016: £31 million), of which £11 million (2016: £13 million) relates to Broadcast & Online and £19 million (2016: £18 million) to ITV Studios. A further £11 million of accelerated depreciation relating to assets made redundant as a result of the property project has been recorded as an exceptional item in 2017. See notes 2.2 and 3.3 for further details.

127 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 2: Results for the Year continued

Operating leases The total undiscounted future minimum lease payments under non-cancellable operating leases are due for payment as follows:

Property Other Total 2017 £m £m £m Within one year 28 3 31 Later than one year and not later than five years 89 4 93 Later than five years 19 – 19 136 7 143

Re-presented* Property Other Total 2016 £m £m £m Within one year 19 – 19 Later than one year and not later than five years 59 – 59 Later than five years 17 – 17 95 – 95

* The Group holds transmission supply agreements that require the use of transponder assets for a period of up to ten years with payments increasing over time, limited by specific RPI caps. The Group has assessed the contracts under the new accounting standard IFRS 16, and consequently has reassessed the transponder assets under the current accounting standard, IAS 17. As a result, the Group has re-presented the transmission supply agreements as service agreements as opposed to operating leases. The impact of this is to remove the transponder assets from the operating lease disclosures in this note and disclose them instead as a commitment within note 3.1. There is no impact on the income statement, financial position or cash flow of the Group for this presentational change.

The Group’s operating leases relate to offices, studio properties and other assets such as cars and office equipment.

Property leases run for terms ranging from five to 20 years, depending on the expected operational use of the site. Leases may include break clauses or options to renew (options to renew are not included in the commitments table). Lease payments are generally subject to market review every five years to reflect market rentals, but because of the uncertainty over the amount of any future changes, such changes have not been reflected in the table above. None of the lease agreements include contingent rentals. The total operating lease expenditure recognised during the year was £21 million (2016: £19 million) and total sublease payments received were £1 million (2016: £1 million). Audit fees The Group engages KPMG LLP (KPMG) on assignments additional to its statutory audit duties where its expertise and experience with the Group are important and are in line with Group’s policy on auditor independence. Fees paid to KPMG and its associates during the year are set out below:

2017 2016 £m £m For the audit of the Group’s annual accounts 0.6 0.6 For the audit of subsidiaries of the Group 0.6 0.6 Audit-related assurance services 0.2 0.2 Total audit and audit-related assurance services 1.4 1.4 Taxation advisory services – 0.2 Other assurance services – 0.1 Total non-audit services – 0.3 Total fees paid to KPMG 1.4 1.7

There were no fees payable in 2017 or 2016 to KPMG and associates for the auditing of accounts of any associate or pension scheme of the Group, internal audit services, services relating to corporate finance transactions entered into or proposed to be entered into, by or on behalf of the Group or any of its associates. Fees paid to KPMG for audit and other services to the Company are not disclosed in its individual accounts as the Group accounts are required to disclose such fees on a consolidated basis.

128 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 2: Results for the Year

Strategic Report

2.2 Keeping Exceptional items are excluded from management’s assessment of profit because Exceptional it simple by their size or nature they could distort the Group’s underlying quality of earnings. They are typically gains or losses arising from events that are not considered part of items the core operations of the business (e.g. costs relating to capital transactions, such as professional fees on acquisitions). These items are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis. Governance

Accounting policies Exceptional items as described above are highlighted on the face of the income statement. See the Operating and Performance Review on pages 34 to 35 for the detailed explanation of the Group’s use of adjusted performance measures. Subsequent revisions of estimates for items initially recognised as exceptional are recorded as exceptional items in the year that the revision is made. Gains or losses on disposal of non-core assets are also considered exceptional due to their nature and impact on the Group’s underlying quality of earnings. Exceptional items Operating and non-operating exceptional items are analysed as follows:

2017 2016 (Charge)/credit Ref. £m £m Operating exceptional items: Acquisition-related expenses A (96) (131) Restructuring and property project costs B (30) (14) Financial Statements Insured trade receivable provision C (27) – Pension curtailment cost D – (19) Total operating exceptional items (153) (164) Non-operating exceptional items: Loss on sale of non-current assets (1) – Total non-operating exceptional items (1) – Total exceptional items before tax (154) (164) Tax on exceptional items 12 15 Total exceptional items net of tax (142) (149)

A – Acquisition-related expenses Acquisition-related expenses of £96 million includes £86 million (2016: £110 million) relating to performance-based, employment-linked costs to former owners mainly in relation to Talpa Media. The remaining £10 million (2016: £21 million) is primarily comprised of integration costs and professional fees (mainly financial due diligence and legal costs). See note 3.4 for further details on acquisitions. Additional information Additional B – Restructuring and property project costs In 2017, the Directors made the decision to redevelop the Group’s headquarters at The London Television Centre for which the Group owns the freehold. This requires relocating staff and studios for 4 to 5 years to alternative accommodation before moving back into a new freehold building. Therefore, the Group has taken rented office and studios space in the interim while the new headquarters are constructed. During the course of the construction the Group will ring fence all incremental costs in relation to the redevelopment. Move costs, dual rates and rent will be treated as exceptional costs in the financial statements as they relate to the one-off property project that runs over several years but the Group will no longer incur them after the return to The London Television Centre. In 2017, the Group incurred £24 million of costs being: • Dual running costs of £7 million while the properties were vacant during refurbishment; • £11 million of accelerated depreciation relating to assets made redundant as a result of the property project; • £3 million of dilapidation provisions relating to these new property leases; and • Other incremental one-off project costs of £3 million. As a result of the review of the Group’s London property needs, the Directors have decided to close The London Studios business incurring £6 million of redundancy costs in 2017.

129 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 2: Results for the Year continued

In 2016, £14 million of costs were incurred as a result of a one-off project stemming from the Group-wide commitment to reduce the overhead cost base by £25 million. This cost was primarily comprised of redundancies across the Broadcasting, ITV Studios and Shared Services divisions as well as professional support to successfully plan and implement the project.

C – Insured trade receivable provision The insured trade receivable provision of £27 million relates to the unpaid portion of revenue from the four-year licence deal for The Voice of China with Talent Television and Film Co. Ltd (Talent), the revenue for which was fully recognised in 2016 in accordance with accounting standards as the Group had no further obligations under the terms of the agreement. Following a breach of the agreement by Talent as they had not fulfilled their payment obligations, the Group have taken back the licence for The Voice of China. The Group is pursuing Talent vigorously for the £30 million still due under the agreement. Further, the Group has credit insurance in place and a claim has been submitted. Whilst the Directors continue to pursue the amounts due and believe there is ultimately no material financial impact, the Group will need to reflect a provision against this unpaid amount in its 2017 results. Whilst the Directors are confident in recovering the amount due, the accounting standards set very specific requirements for the recognition of contingent assets, which is how the recovery of the amount due will be accounted for. As discussions with the insurers and the claim against Talent are in progress, at this early stage of pursuing recovery the Group is not able to demonstrate sufficient certainty for accounting purposes to be able to recognise a cash receivable at the year end. Accordingly, The Group has made a provision amounting to £27 million (£30 million net of £3 million insurance excess) against the Talent receivable recorded in the accounts in the year ended 31 December 2017. The cash received in the future will also be treated as an exceptional item. D – Pension curtailment cost In 2016, following a member consultation, the Group decided to close the ITV Pension Scheme to future benefit accrual, resulting in a one-off non-cash curtailment cost of £19 million.

130 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 2: Results for the Year

Strategic Report

2.3 Keeping This section sets out the Group’s tax accounting policies, the current and deferred Taxation it simple tax charges or credits in the year (which together make up the total tax charge or credit in the income statement), a reconciliation of profit before tax to the tax charge for the period and the movements in deferred tax assets and liabilities. Governance

Accounting policies The tax charge for the period is recognised in the income statement, the statement of comprehensive income and directly in equity, according to the accounting treatment of the related transactions. The tax charge comprises both current and deferred tax. The calculation of the Group’s tax charge involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be fully determined until a resolution has been reached by the relevant tax authority. Current tax Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment in respect of previous years. The Group recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are likely to become due, which require judgement. Amounts are accrued based on management’s interpretation of specific tax law and the likelihood of settlement. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current tax and deferred tax provisions in the period in which such determination is made.

Deferred tax Financial Statements Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those for taxation purposes. The following temporary differences are not provided for: • The initial recognition of goodwill; • The initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and • Differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. Deferred tax is calculated using tax rates that are enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary difference. Recognition of deferred tax assets, therefore, involves judgement regarding the timing and level of future taxable income. Additional information Additional Deferred tax assets and liabilities are disclosed net to the extent that they relate to taxes levied by the same authority and the Group has the right of set-off.

131 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 2: Results for the Year continued

Taxation – Income statement The total taxation charge in the income statement is analysed as follows:

2017 2016 £m £m Current tax: Current tax charge on profit before exceptional items (110) (134) Current tax credit on exceptional items 8 11 (102) (123) Adjustments to prior periods (2) 10 (104) (113) Deferred tax: Origination and reversal of temporary differences 13 18 Deferred tax credit on exceptional items 4 4 Impact of change in the statutory tax rate (6) 1 11 23 Adjustments to prior periods 6 (10) 17 13 Total taxation charge in the income statement (87) (100)

In order to understand how, in the income statement, a tax charge of £87 million (2016: £100 million) arises on a profit before tax of £500 million (2016: £553 million), the taxation charge that would arise at the standard rate of UK corporation tax is reconciled to the actual tax charge as follows:

2017 2016 £m £m Profit before tax 500 553 Notional taxation charge at UK corporation tax rate of 19.25% (2016: 20%) on profit before tax (96) (111) Non-taxable income/non-deductible expenses (35) (25) Prior year adjustments 4 – Other taxes – (1) Previously unrecognised deferred tax asset 11 – Current year losses not recognised (4) (2) Impact of overseas tax rates 7 10 Impact of changes in tax rates (6) 1 Production tax credits 32 28 Total taxation charge in the income statement (87) (100)

Non-deductible expenses are expenses that are not expected to be allowable for tax purposes. Similarly, non-taxable income is income that is not expected to be taxable. Adjustments to prior periods primarily arise where an outcome is obtained on certain tax matters, which differs from expectations held when the related provision was made. Where the outcome is more favourable than the provision made, the difference is released, lowering the current year tax charge. Where the outcome is less favourable than our provision, an additional charge to current year tax will occur. The current tax charge includes a £2 million charge relating to prior years, and the deferred tax credit includes a £6 million credit relating to prior years. Previously unrecognised deferred tax assets are in relation to deferred tax assets arising on consolidation in relation to intangible assets which are now being brought on to the balance sheet in the current period. Current year losses not recognised primarily relate to a capital loss arising on the write-down of an investment, as it is uncertain whether this loss can be utilised in future periods. The impact of overseas tax rates reflects the fact that some of our profits are earned in territories other than the UK and taxed at rates different from the UK corporation tax rate. This year, losses arising in higher taxed jurisdictions, which we recognise through deferred tax, give rise to a reconciling benefit. The UK corporation tax rate fell from 20% to 19% from 1 April 2017 and has been enacted to fall further to 17% from 1 April 2020. These rates were enacted at the previous balance sheet date, and the carrying value of UK temporary differences were adjusted accordingly. To the extent that temporary differences have unwound in the current year, this has given rise to a credit of £6 million (2016: charge of £5 million) of which £2 million is recognised as a credit in the income statement and £4 million as a credit in other comprehensive income. In addition, as a result of the recent enactment of the Tax Cuts and Jobs Act in the US, the Group has recognised a tax charge of £9 million through the

132 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 2: Results for the Year

Strategic Report

income statement, resulting from the revaluation of our US deferred tax assets to reflect the reduction in the US federal corporate tax rate to 21% from 1 January 2018. Changes to enacted rates in other countries have given rise to a further credit of £1 million reported in the income statement. The total impact of changes in tax rates is therefore a charge of £6 million in the income statement and a credit of £4 million in other comprehensive income. The production tax credits included within the reconciliation above are UK High-End Television (HETV) tax credits and Children’s Television tax credits, which are part of a group of incentives provided to support the creative industries, and also Italian production tax credits. The ability to access these tax credits is fundamental when assessing the viability of investment decisions in the production of high-end drama and children’s programmes. Under IFRS, these production tax Governance credits are reported within the total taxation charge in the income statement. However, ITV considers them to be a contribution to production costs, and therefore working capital in nature, and excludes them from its adjusted tax charge, including them instead within Adjusted EBITA. The effective tax rate is 17.4% (2016: 18.1%), and is the tax charge on the face of the income statement expressed as a percentage of the profit before tax. In the years ended 31 December 2017 and 31 December 2016, the effective tax rate is comparable to the standard rate of UK corporation tax of 19.25% in 2017 and 20% in 2016. As explained in the Finance Review, the Group uses an adjusted tax rate to show how tax impacts total adjusted earnings in a way that is more aligned with the Group’s cash tax position. This year, the current year movement on origination and reversal of temporary differences (excluding exceptional items) is a credit of £13 million, compared with a credit of £18 million in 2016. Taxation – Other comprehensive income and equity As analysed in the table below, a deferred tax charge of £39 million on actuarial movements on pensions has been recognised in other comprehensive income (2016: £40 million credit). A deferred tax charge of £1 million has been recognised in equity in respect of share-based payments (2016: £6 million).

A current tax credit of £1 million has also been recognised inequity in relation to share-based payments (2016: £2 million). Financial Statements Taxation – Statement of financial position The table below outlines the deferred tax assets/(liabilities) that are recognised in the statement of financial position, together with their movements in the year:

At Recognised in At 1 January Other the income Recognised in Business Foreign 31 December 2017 movements statement OCI and equity acquisitions exchange 2017 £m £m £m £m £m £m £m Tangible assets – 3 (3) – – – – Intangible assets (94) – 22 – (6) (2) (80) Programme rights 1 – – – – – 1 Pension scheme deficits 34 – (13) (39) – – (18) Tax losses 30 – (6) – – (3) 21 Share-based compensation (4) – – (1) – – (5) Other temporary differences (20) (2) 17 – 4 2 1 (53) 1 17 (40) (2) (3) (80)

information Additional

At Recognised in At 1 January the income Recognised in Business Foreign 31 December 2016 Reclassification statement OCI and equity acquisitions exchange 2016 £m £m £m £m £m £m £m Intangible assets (101) 14 15 – (10) (12) (94) Programme rights 1 – – – – – 1 Pension scheme deficits 1 1 (8) 40 – – 34 Tax losses 4 – 23 – – 3 30 Share-based compensation 11 (5) (4) (6) – – (4) Other temporary differences 5 (10) (13) – – (2) (20) (79) – 13 34 (10) (11) (53)

At 31 December 2017, total deferred tax assets are £23 million (2016: £65 million) and total deferred tax liabilities are £103 million (2016: £118 million). After netting off balances within countries, there is a deferred tax liability of £111 million and a deferred tax asset of £31 million (2016: deferred tax liability of £70 million and deferred tax asset of £17 million) recognised in the Consolidated Statement of Financial Position.

133 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 2: Results for the Year continued

The deferred tax balances relate to: • Property, plant and equipment temporary differences arising on assets qualifying for tax depreciation; • Temporary differences on intangible assets, including those arising on business combinations; • Programme rights – temporary differences on intercompany profits on stock; • Pension scheme deficit temporary differences on the IAS 19 pension deficit; • Temporary differences arising from the timing of the use of tax losses; • Share-based compensation temporary differences on share schemes; and • Other temporary differences on provisions and other items. The deferred tax balance associated with the pension deficit reflects the current tax benefit obtained in the current year following the employer contributions of £80 million to the Group’s defined benefit pension scheme. The adjustment in other comprehensive income to the deferred tax balance primarily relates to the actuarial gain recognised in the period. A deferred tax asset of £377 million (2016: £377 million) in respect of capital losses of £2,217 million (2016: £2,215 million) has not been recognised due to uncertainties as to whether capital gains will arise in the appropriate form and relevant territories against which such losses could be utilised. For the same reasons, deferred tax assets of £13 million (2016: £19 million) in respect of overseas losses that time expire between 2018 and 2026 have not been recognised. In line with our accounting policy on current tax, provisions are held on the balance sheet within current tax liabilities in respect of uncertain tax positions where management believe that it is probable that future payments of tax will be required. At the balance sheet date, these tax provisions were not material for the Group.

2.4 Keeping Earnings per share (‘EPS’) is the amount of post-tax profit attributable to each Earnings it simple share. In 2016, we presented EPS for the continuing business and the discontinued operation, UTV Ireland Limited (see note 2.5 for further details). per share Basic EPS is calculated on the Group profit for the year attributable to equity shareholders of £409 million (2016: £448 million) divided by 4,006 million (2016: 4,010 million), being the weighted average number of shares in issue during the year, which excludes EBT shares held in trust (see note 4.7). Diluted EPS reflects any commitments made by the Group to issue shares in the future and so it includes the impact of share options. Adjusted EPS is presented in order to show the business performance of the Group in a consistent manner and reflect how the business is managed and measured on a day-to-day basis. Adjusted EPS reflects the impact of operating and non-operating exceptional items on Basic EPS. Other items excluded from Adjusted EPS are amortisation and impairment of intangible assets acquired through business combinations; net financing cost adjustments; and the tax adjustments relating to these items. Each of these adjustments is explained in detail in the section below.

The calculation of Basic EPS and Adjusted EPS, together with the diluted impact on each, is set out below: Basic earnings per share

2017 2016 £m £m Profit for the year attributable to equity shareholders of ITV plc 409 448 Less: Loss for the year from discontinued operations – (1) Profit for the year attributable to equity shareholders of ITV plc from continuing operations 409 449 Weighted average number of ordinary shares in issue – million 4,006 4,010 Basic earnings per ordinary share and from continuing operations 10.2p 11.2p Basic loss per ordinary share from discontinued operations – –

134 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 2: Results for the Year

Strategic Report

Diluted earnings per share

2017 2016 £m £m Profit for the year attributable to equity shareholders of ITV plc from continuing operations 409 449 Weighted average number of ordinary shares in issue – million 4,006 4,010 Dilution due to share options 11 19 Total weighted average number of ordinary shares in issue – million 4,017 4,029 Governance Diluted earnings per ordinary share and from continuing operations 10.2p 11.1p Diluted loss per ordinary share from discontinued operations – –

Adjusted earnings per share

2017 2016 Ref. £m £m Profit for the year attributable to equity shareholders of ITV plc 409 448 Exceptional items (net of tax) A 142 149 Less: Loss after tax for the period from discontinued operations – (1) Profit for the year before exceptional items from continuing operations 551 598 Amortisation and impairment of acquired intangible assets B 78 66 Adjustments to net financing costs C 13 19 Adjusted profit from continuing operations 642 683 Total weighted average number of ordinary shares in issue – million 4,006 4,010

Adjusted earnings per ordinary share and from continuing operations 16.0p 17.0p Financial Statements Adjusted loss per ordinary share from discontinued operations – –

Diluted adjusted earnings per share

2017 2016 £m £m Adjusted profit from continuing operations 642 683 Weighted average number of ordinary shares in issue – million 4,006 4,010 Dilution due to share options 11 19 Total weighted average number of ordinary shares in issue – million 4,017 4,029 Diluted adjusted earnings per ordinary share and from continuing operations 16.0p 17.0p Diluted adjusted loss per ordinary share from discontinued operations – –

Details of the adjustments to earnings are as follows: A. Exceptional items (net of tax) £142 million (2016: £149 million), calculated as total of: • exceptional items of £154 million (2016: £164 million), see note 2.2 for the detailed composition,

• net of related tax credit of £12 million (2016: £15 million). information Additional B. Amortisation and impairment of acquired intangible assets of £78 million (2016: £66 million), calculated as total of: • amortisation and impairment of assets acquired through business combinations and investments of £102 million (2016: £89 million), excluding amortisation of software licences and development of £5 million (2016: £12 million), • net of related tax credit of £19 million (2016: £11 million). C. Adjustments to net financing costs £13 million (2016: £19 million). Net financing costs of £50 million (2016: £51 million) are adjusted for: • mark-to-market movements on derivative instruments, foreign exchange and imputed pension interest charges of £33 million (2016: £26 million), • net of related tax credit of £4 million (2016: £6 million).

135 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 2: Results for the Year continued

2.5 Keeping A discontinued operation is a distinct component of the business that has been or Discontinued it simple is in the process of being disposed of. Accounting standards dictate that the loss from discontinued operations is recognised outside of the Group’s operating results. operations The Group’s 2017 results were all derived from continuing operations. During 2016, management agreed to sell UTV Ireland Limited to Virgin Media for €10 million. The sale completed on 30 November 2016 and the assets and liabilities classified as a disposal group held-for-sale have been disposed of.

Results of discontinued operations

2017 2016 £m £m Revenue – 11 Expenses – (17) Operating loss – (6) Taxation – – Loss after tax – (6) Gain on sale of discontinued operations – 5 Tax on gain on sale of discontinued operations – – Loss for the period – (1) Earnings per share Basic loss per share – – Diluted loss per share – –

Cash flows from (used in) discontinued operations

2017 2016 £m £m Net cash used in operating activities – (6) Net cash from investing activities – 10 Net cash flow for the period – 4

136 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Notes to the Financial Statements Strategic Report Section 3: Operating Assets and Liabilities

In this This section shows the assets used to generate the Group’s trading performance section and the liabilities incurred as a result. On the following pages, there are notes covering working capital, non-current assets and liabilities, acquisitions and disposals, provisions and pensions.

Liabilities relating to the Group’s financing activities are addressed in section 4. Deferred tax assets and liabilities are shown in note 2.3. Governance

3.1 Keeping Working capital represents the assets and liabilities the Group generates through Working it simple its trading activity. The Group therefore defines working capital as distribution rights, programme rights and production costs, trade and other receivables and capital trade and other payables. Careful management of working capital ensures that the Group can meet its trading and financing obligations within its ordinary operating cycle. Working capital is a driver of the profit to cash conversion ratio, a key performance indicator for the Group. The Group’s target profit to cash ratio on a rolling three year basis is at least 90%. For those subsidiaries acquired during the year, working capital at the date of acquisition is excluded from the profit to cash calculation so that only subsequent working capital movements in the period controlled by ITV are reflected in this metric.

In the following section, you will find further information regarding working capital Financial Statements management and analysis of the elements of working capital.

3.1.1 Programme rights, other inventory and commitments Accounting policies Rights are recognised when the Group controls the respective rights and the risks and rewards associated with them. Programme rights and production costs not yet utilised are included in the statement of financial position at the lower of cost and net realisable value. In assessing net realisable value for programmes in production, judgement is required when considering the contracted sales price and estimated costs to complete. Broadcast programme rights Acquired programme rights (which include films) and sports rights are purchased for the primary purpose of broadcasting on the ITV family of channels, including VOD and SVOD platforms. These are recognised within current assets as payments are made or when the rights are ready for broadcast. The Group generally expenses these rights through operating costs over a number of transmissions reflecting the pattern and value in which the right is consumed. Additional information Additional Commissions, which primarily comprise programmes purchased based on editorial specification and over which the Group has some control, are recognised in current assets as payments are made and are generally expensed to operating costs in full on first transmission. Where a commission is repeated on any platform, incremental costs associated with the broadcast are included in operating costs. The net realisable value assessment for acquired and commissioned rights is based on estimated airtime value, with consideration given to whether the number of transmissions purchased can be efficiently played out over the licence period. The Broadcast programme rights and other inventory at the year end are shown in the table below:

2017 2016 £m £m Acquired programme rights 179 157 Commissions 86 69 Sports rights 58 27 323 253

137 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

Broadcast programme and transmission commitments Transmission commitments are the contracted future payments under transmission supply agreements that require the use of transponder assets for a period of up to ten years with payments increasing over time, limited by specific RPI caps. These have been re-presented as a commitment in 2017 (see operating leases section in note 2.1 for details). Programming commitments are transactions entered into in the ordinary course of business with programme suppliers, sports organisations and film distributors in respect of rights to broadcast on the ITV network. Commitments in respect of these transactions, which are not reflected in the statement of financial position, are due for payment as follows:

Transmission Programme Total 2017 £m £m £m Within one year 32 455 487 Later than one year and not more than five years 132 709 841 More than five years 58 47 105 222 1,211 1,433

Re-presented Transmission Programme Total 2016 £m £m £m Within one year 28 454 482 Later than one year and not more than five years 129 789 918 More than five years 92 112 204 249 1,355 1,604

Studios production costs Production inventory comprises the costs incurred by ITV Studios in producing a programme, where the programme is part way through the production process and not yet available for delivery to a broadcaster. Inventory is recognised within current assets at the value of the production cost incurred, and is expensed in operating costs on delivery of episodes. Also included here are dramas where production costs are partly funded by the commissioning network licence fee and tax credits, if available. The remaining deficit is funded by the Group and is recovered by future distribution sales. Once the production is complete, the deficit is classified as a distribution right. The Studios programme rights and other inventory at the year end are shown in the table below:

2017 2016 £m £m Production costs 247 153

3.1.2 Distribution rights Accounting policies Distribution rights are programme rights the Group buys from producers to derive future revenue, principally through licensing to other broadcasters. These are classified as non-current assets as these rights are used to derive long-term economic benefit for the Group. Distribution rights are recognised initially at cost and charged through operating costs in the income statement over a period not exceeding five years, reflecting the value and pattern in which the right is consumed. Judgement is required when estimating future patterns of consumption. Advances paid for the acquisition of distribution rights are disclosed as distribution rights as soon as they are contracted. These advances are not expensed until the programme is available for distribution. Up to that point, they are assessed annually for impairment through the reassessment of the future sales expected to be earned from that title. The net book value of distribution rights at the year end is as follows:

2017 2016 £m £m Distribution rights 19 31

During the year, £35 million was charged to the income statement (2016: £38 million).

138 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

3.1.3 Trade and other receivables Accounting policies Trade receivables are recognised initially at the value of the invoice sent to the customer and subsequently at the amounts considered recoverable (amortised cost). Where payments are not due for more than one year, they are shown in the financial statements at their net present value to reflect the economic cost of delayed payment. The Group provides goods and services to substantially all its customers on credit terms. Estimates are used in determining the level of receivables that will not, in the opinion of the Directors, be collected. These estimates include such factors as historical experience, the current state of the UK and overseas economies Governance and industry specific factors. A provision for impairment of trade receivables is established when there is sufficient evidence that the Group will not be able to collect all amounts due. The carrying value of trade receivables is considered to approximate fair value. Trade and other receivables can be analysed as follows:

2017 2016 £m £m Due within one year: Trade receivables 311 315 Other receivables 51 39 Prepaid employment-linked consideration – 21 Prepayments and accrued income 152 151 514 526 Due after more than one year: Trade receivables 19 12 Accrued income and other receivables 8 27

27 39 Financial Statements Total trade and other receivables 541 565

In 2016, prepaid employment-linked consideration of £21 million related to the acquisition of Talpa Media in 2015. This represented the portion of the initial consideration of €150 million that was recoverable from the seller in the event he left within the initial two years following acquisition. This amount was amortised over the two years to 31 March 2017 and recognised as exceptional expense (see note 2.2).

£330 million (2016: £327 million) of total trade receivables, stated net of provisions for impairment, are aged as follows.

2017 2016 £m £m Current 275 299 Up to 30 days overdue 28 19 Between 30 and 90 days overdue 16 6 Over 90 days overdue 11 3 330 327

information Additional Movements in the Group’s provision for impairment of trade receivables and accrued income can be shown as follows:

2017 2016 £m £m At 1 January 4 5 Charged during the year – insured trade receivable provision (note 2.2) 30 – Charged during the year – other receivables 5 3 Unused amounts reversed (4) (4) At 31 December 35 4

Of the provision total, £4 million relates to balances overdue by more than 90 days (2016: £3 million) and less than £1 million relates to current balances (2016: £1 million). £30 million of the provision relates to the overdue Talent receivable, which is impairing £14 million of trade receivables and £16 million of accrued income. The provision for these insured receivables, net of insurance excess, has been recognised as an exceptional expense (see note 2.2).

139 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

3.1.4 Trade and other payables due within one year Accounting policies Trade payables are recognised at the value of the invoice received from a supplier. The carrying value of current and non-current trade payables is considered to approximate fair value. Trade and other payables due within one year can be analysed as follows:

2017 2016 £m £m Trade payables 63 71 VAT and social security 67 61 Other payables 234 186 Acquisition-related liabilities – employment-linked contingent consideration 34 72 Acquisition-related liabilities – payable to sellers under put options agreed on acquisition 42 33 Accruals 371 332 Deferred income 218 205 1,029 960

3.1.5 Trade and other payables due after more than one year Trade and other payables due after more than one year can be analysed as follows:

2017 2016 £m £m Trade payables 68 57 Other payables 21 10 Acquisition-related liabilities – employment-linked contingent consideration 54 38 Acquisition-related liabilities – payable to sellers under put options agreed on acquisition 31 15 174 120

Trade payables primarily relate to film creditors for which payment is due after more than one year. 3.1.6 Working capital management Cash and working capital management continues to be a key focus. During the year, the cash outflow from working capital was £58 million (2016: outflow of £28 million) derived as follows:

2017 2016 £m £m Increase in programme rights and other inventory and distribution rights (94) (35) Decrease/(increase) in receivables 13 (56) Increase in payables 23 63 Working capital outflow (58) (28)

The working capital outflow for the year excludes the impact of balances acquired on the acquisition of subsidiaries during the year (see note 3.4).

140 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

The following section shows the physical assets used by the Group to operate the 3.2 Keeping business, generating revenues and profits. These assets include office buildings and Property, it simple studios, as well as equipment used in broadcast transmission, programme production and support activities. plant and equipment The cost of these assets is the amount initially paid for them. A depreciation expense is charged to the income statement to reflect annual wear and tear and the reduced value of the asset over time. Depreciation is calculated by estimating the number of

years the Group expects the asset to be used (useful economic life). If there has been Governance a technological change or decline in business performance, the Directors review the value of the assets to ensure they have not fallen below their depreciated value. If an asset’s value falls below its depreciated value, an additional impairment charge is made against profit. This section also explains the accounting policies followed by ITV and the specific estimates made in arriving at the net book value of these assets.

Accounting policies Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Certain items of property, plant and equipment that were revalued to fair value prior to 1 January 2004 (the date of transition to IFRS) are measured on the basis of deemed cost, being the revalued amount less depreciation up to the date of transition. Leases Finance leases are those that transfer substantially all the risks and rewards of ownership to the lessee. Financial Statements Determining whether a lease is a finance lease requires judgement as to whether substantially all of the risks and benefits of ownership have been transferred to the Group. Estimates used by management in making this assessment include the useful economic life of assets, the fair value of the asset and the discount rate applied to the total payments required under the lease. Assets held under such leases are included within property, plant and equipment and depreciated on a straight-line basis over their estimated useful lives. Outstanding finance lease obligations, which comprise the principal plus accrued interest, are included within borrowings. The finance element of the agreements is charged to the income statement over the term of the lease on an effective interest basis. All other leases are operating leases, the rentals on which are charged to the income statement on a straight-line basis over the lease term (see note 2.1 for further details of operating lease commitments). Depreciation Depreciation is provided to write off the cost of property, plant and equipment less estimated residual value, on a straight-line basis over their estimated useful lives. The annual depreciation charge is sensitive to the estimated useful life of each asset and the expected residual value at the end of its life. The major categories of property, plant and equipment are depreciated as follows: Additional information Additional

Asset class Depreciation policy Freehold land not depreciated Freehold buildings up to 60 years Leasehold improvements shorter of residual lease term or estimated useful life Vehicles, equipment and fittings * 3 to 20 years

* Equipment includes studio production and technology assets. Assets under construction are not depreciated until the point at which the asset comes into use by the Group.

141 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

Impairment of assets Property, plant and equipment that is subject to depreciation is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indicators of impairment may include changes in technology and business performance. Property, plant and equipment Property, plant and equipment can be analysed as follows:

Freehold land Improvements to leasehold Vehicles, equipment and buildings land and buildings and fittings Total Finance Long Short Owned leases £m £m £m £m £m £m Cost At 1 January 2016 89 66 18 264 16 453 Additions – – 2 27 – 29 Acquisitions 3 – – 1 – 4 Foreign exchange – – – 6 – 6 Reclassifications – – – 3 (3) – Disposals and retirements – – – (29) (13) (42) At 31 December 2016 92 66 20 272 – 450 Additions – 6 – 40 – 46 Acquisitions 7 – – 4 – 11 Foreign exchange – – – (3) – (3) Disposals and retirements – (2) – (30) – (32) At 31 December 2017 99 70 20 283 – 472

Depreciation At 1 January 2016 6 14 15 165 14 214 Charge for the year 1 2 1 27 – 31 Foreign exchange – – – 3 – 3 Reclassifications – – – 1 (1) – Disposals and retirements – – – (29) (13) (42) At 31 December 2016 7 16 16 167 – 206 Charge for the year 8 2 – 31 – 41 Foreign exchange – – – (1) – (1) Disposals and retirements – (2) – (28) – (30) At 31 December 2017 15 16 16 169 – 216 Net book value At 31 December 2017 84 54 4 114 – 256 At 31 December 2016 85 50 4 105 – 244

Included within property, plant and equipment are assets in the course of construction of £41 million (2016: £19 million), £16 million of which relates to the London property project (refer to note 2.2 for further details). Included within the depreciation charge for the year of £41 million is £11 million of accelerated depreciation relating to assets made redundant as a result of the property project. This accelerated depreciation has been recorded as an exceptional item in 2017. Refer to note 2.2 for further details. In 2013, the Group acquired the freehold for the London Television Centre for £58 million, although the Directors’ view is that the fair value of the property would be significantly higher than the carrying value. Capital commitments There are £15 million of capital commitments at 31 December 2017 (2016: £4 million).

142 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

3.3 Keeping The following section shows the non-physical assets used by the Group to generate Intangible it simple revenue and profits. assets These assets include formats and brands, customer contracts and relationships, contractual arrangements, licences, software development, film libraries and goodwill. The cost of these assets is the amount that the Group has paid or, where there has been a business combination, the fair value of the specific intangible assets

that could be sold separately or which arise from legal rights. In the case of goodwill, Governance its cost is the amount the Group has paid in acquiring a business over and above the fair value of the individual assets and liabilities acquired. The value of goodwill is the ‘intangible’ value that comes from, for example, a uniquely strong market position and the outstanding productivity of its employees. The value of intangible assets, with the exception of goodwill, reduces over the number of years the Group expects to use the asset, the useful economic life, via an annual amortisation charge to the income statement. Where there has been a technological change or decline in business performance, the Directors review the value of assets, including goodwill, to ensure they have not fallen below their amortised value. Should an asset’s value fall below its amortised value, an additional impairment charge is made against profit. This section explains the accounting policies applied and the specific judgements and estimates made by the Directors in arriving at the net book value of these assets.

Accounting policies Financial Statements Goodwill Goodwill represents the future economic benefits that arise from assets that are not capable of being individually identified and separately recognised. The goodwill recognised by the Group has all arisen as a result of business combinations. Goodwill is stated at its recoverable amount being cost less any accumulated impairment losses and is allocated to the business to which it relates. Due to changes in accounting standards, goodwill has been calculated using three different methods depending on the date the relevant business was purchased. Method 1: All business combinations that have occurred since 1 January 2009 were accounted for using the acquisition method. Under this method, goodwill is measured as the fair value of the consideration transferred (including the recognition of any part of the business not yet owned (non-controlling interests)), less the fair value of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date. Any contingent consideration expected to be transferred in the future will be recognised at fair value at the acquisition date and recognised within other payables. Contingent consideration classified as an asset or liability that is a financial instrument is measured at fair value with changes in fair value recognised in the income statement. The determination of fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount rate. information Additional Where less than 100% of a subsidiary is acquired, and call and put options are granted over the remaining interest, a non-controlling interest is initially recognised in equity at fair value, which is established based on the value of the put option. A call option is recognised as a derivative financial instrument, carried at fair value. The put option is recognised as a liability within other payables, carried at the present value of the put option exercise price, and a corresponding charge is included in merger and other reserves. Any subsequent remeasurement of the put option liability is recognised within finance income or cost. Subsequent adjustments to the fair value of net assets acquired can only be made within 12 months of the acquisition date, and only if fair values were determined provisionally at an earlier reporting date. These adjustments are accounted for from the date of acquisition. Acquisitions of non-controlling interests are accounted for as transactions with owners and therefore no goodwill is recognised as a result of such transactions. Transaction costs incurred in connection with those business combinations, such as legal fees, due diligence fees and other professional fees, are expensed as incurred. The Directors consider these costs to reflect the cost of acquisition and to form a part of the capital transaction, and highlight them separately as exceptional items.

143 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

Method 2: All business combinations that occurred between 1 January 2004 and 31 December 2008 were accounted for using the purchase method in accordance with IFRS 3 ‘Business Combinations’ (2004). Goodwill on those combinations represents the difference between the cost of the acquisition and the fair value of the identifiable net assets acquired and did not include the value of the non-controlling interest. Transaction costs incurred in connection with those business combinations, such as legal fees, due diligence fees and other professional fees, were included in the cost of acquisition. Method 3: For business combinations prior to 1 January 2004, goodwill is included at its deemed cost, which represents the amount recorded under UK GAAP at that time less accumulated amortisation up to 31 December 2003. The classification and accounting treatment of business combinations occurring prior to 1 January 2004, the date of transition to IFRS, has not been reconsidered, as permitted under IFRS 1. Other intangible assets Intangible assets other than goodwill are those that are distinct and can be sold separately or which arise from legal rights. The main intangible assets the Group has valued are formats, brands, licences, contractual arrangements, customer contracts and relationships and libraries. Within ITV, there are two types of other intangible assets: those assets directly purchased by the Group for day-to-day operational purposes (such as software licences and development) and intangible assets identified as part of an acquisition of a business. Intangible assets acquired directly by the Group are stated at cost less accumulated amortisation. Those separately identified intangible assets acquired as part of an acquisition or business combination are shown at fair value at the date of acquisition less accumulated amortisation. Each class of intangible assets’ valuation method on initial recognition, amortisation method and estimated useful life is set out in the table below:

Class of intangible Amortisation method Estimated useful life Valuation method asset Brands Straight-line 8 to 14 years Applying a royalty rate to the expected future revenue over the life of the brand. Formats Straight-line up to 8 years Expected future cash flows from those assets existing at the Customer Straight-line or up to 6 years date of acquisition are estimated. If applicable, a contributory contracts reducing balance charge is deducted for the use of other assets needed to as appropriate exploit the cash flow. The net cash flow is then discounted Customer Straight-line 5 to 10 years back to present value. relationships Contractual Straight-line up to 10 years Expected future cash flows from those contracts arrangements depending on existing at the date of acquisition are estimated. If applicable, the contract a contributory charge is deducted for the use of other assets terms needed to exploit the cash flow. The net cash flow is then discounted back to present value. Licences Straight-line 11 to 29 years Start-up basis of expected future cash flows existing depending on at the date of acquisition. If applicable, a contributory charge term of licence is deducted for the use of other assets needed to exploit the cash flow. The net cash flow is then discounted back to present value. PSB licences are valued as a start-up business with only the licence in place. Libraries and Sum of digits or up to 20 years Initially at cost and subsequently at cost less accumulated other straight-line as amortisation. appropriate Software licences Straight-line 1 to 5 years Initially at cost and subsequently at cost less accumulated and development amortisation.

144 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

Determining the fair value of intangible assets arising on acquisition requires judgement. The Directors make estimates regarding the timing and amount of future cash flows derived from exploiting the assets being acquired. The Directors then estimate an appropriate discount rate to apply to the forecast cash flows. Such estimates are based on current budgets and forecasts, extrapolated for an appropriate period taking into account growth rates, operating costs and the expected useful lives of assets. Judgements are also made regarding whether, and for how long, licences will be renewed; this drives our amortisation policy for those assets. The Directors estimate the appropriate discount rate using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the assets or businesses being acquired. Governance Amortisation Amortisation is charged to the income statement over the estimated useful lives of intangible assets unless such lives are judged to be indefinite. Indefinite life assets, such as goodwill, are not amortised but are tested for impairment at each year end. Impairment Goodwill is not subject to amortisation and is tested annually for impairment and when circumstances indicate that the carrying value may be impaired. Other intangible assets are subject to amortisation and are reviewed for impairment whenever events or changes in circumstances indicate that the amount carried in the statement of financial position is less than its recoverable amount. Determining whether the carrying amount of intangible assets has any indication of impairment requires judgement. Any impairment is recognised in the income statement. An impairment test is performed by assessing the recoverable amount of each asset, or for goodwill the cash- generating unit (‘CGU’),or group of CGUs, related to the goodwill. Total assets (which include goodwill) are grouped at the lowest levels for which there are separately identifiable cash flows. Financial Statements The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The value in use is based on the present value of the future cash flows expected to arise from the asset. In testing for impairment, estimates are used in deriving cash flows and the discount rates. Such estimates reflect current market assessments of the risks specific to the asset and the time value of money. The estimation process is complex due to the inherent risks and uncertainties associated with long-term forecasting. If different estimates of the projected future cash flows or a different selection ofan appropriate discount rate or long-term growth rate were made, these changes could materially alter the projected value of the cash flows of the asset, and as a consequence materially different amounts would be reported in the financial statements. Impairment losses in respect of goodwill cannot be reversed. In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Additional information Additional

145 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

Intangible assets Intangible assets can be analysed as follows:

Customer Software Formats contracts and Contractual Libraries licences and Goodwill and brands relationships arrangements Licences and other development Total £m £m £m £m £m £m £m £m Cost At 1 January 2016 3,744 481 411 10 121 99 104 4,970 Additions – – – – – – 13 13 Acquisitions 44 3 – – 55 – – 102 Foreign exchange 47 51 9 1 – 4 – 112 At 31 December 2016 3,835 535 420 11 176 103 117 5,197 Additions – – – – – – 23 23 Acquisitions 85 – 21 – – – – 106 Foreign exchange (21) 9 (4) – – (2) – (18) Disposals, retirements and impairment (10) – (1) – – – (5) (16) At 31 December 2017 3,889 544 436 11 176 101 135 5,292 Amortisation and impairment At 1 January 2016 2,654 205 365 7 94 65 80 3,470 Charge for the year – 44 16 2 6 9 12 89 Foreign exchange – 5 6 1 – 2 – 14 At 31 December 2016 2,654 254 387 10 100 76 92 3,573 Charge for the year – 46 17 1 6 7 5 82 Foreign exchange – 3 (4) – – (1) – (2) Disposals, retirements and impairment – – (1) – – – (5) (6) At 31 December 2017 2,654 303 399 11 106 82 92 3,647 Net book value At 31 December 2017 1,235 241 37 – 70 19 43 1,645 At 31 December 2016 1,181 281 33 1 76 27 25 1,624

Gurney Productions LLC has been treated as if it would have been wound down, with no further results to be recognised in the accounts. A provision of £13 million has been recognised against onerous contracts and various assets and liabilities relating to Gurney Productions LLC, which includes £3 million write-off of goodwill. The net effect of these provisions and the derecognition of non-controlling interest is less than £1 million (see note 4.6.6). Goodwill impairment tests The carrying amount of goodwill for each CGU is represented as follows:

2017 2016 £m £m Broadcast & Online 386 386 SDN 76 76 ITV Studios 773 719 1,235 1,181

£3 million of goodwill was written off in the ITV Studios CGU in relation to Gurney Productions LLC. There has been no impairment charge for any CGU during the year (2016: £nil). When assessing impairment, the recoverable amount of each CGU is based on value in use calculations. These calculations require the use of estimates, specifically: pre-tax cash flow projections; long-term growth rates; and a pre-tax market discount rate. Cash flow projections are based on the Group’s current five year plan. Beyond the five year plan, these projections are extrapolated using an estimated nominal long-term growth rate of 1.5% (2016: 2%). The growth rate used is consistent with the long-term average growth rates for both the industry and the countries in which the CGUs are located and is appropriate because these are long-term businesses. The discount rate has been revised for each CGU to reflect the latest market assumptions for the risk-free rate, the equity risk premium and the net cost of debt. There is currently no reasonably possible change in discount rate that would reduce the headroom in any CGU to zero.

146 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

Broadcast & Online The goodwill in this CGU arose as a result of the acquisition of broadcasting businesses since 1999, the largest of which was the merger of Carlton and Granada in 2004 to form ITV plc, which was treated as an acquisition of Carlton for accounting purposes. Broadcast & Online goodwill also includes the goodwill arising on acquisition of UTV Limited in February 2016. The main assumptions on which the forecast cash flow projections for this CGU are based include: the performance and share of the television advertising market; share of commercial impacts; programme and other costs; and the pre-tax market discount rate. Governance The key assumption in assessing the recoverable amount of Broadcast & Online goodwill is the size of the television advertising market. In forming its assumptions about the television advertising market, the Group has used a combination of long-term trends, industry forecasts and in-house estimates, which place greater emphasis on recent experience. No impairment was identified. Also as part of the impairment review, a sensitivity of up to -10% of growth was applied to 2018 and -8% to 2019 with no subsequent recovery, with no impairment identified. The Directors believe that currently no reasonably possible change in these assumptions would reduce the headroom in this CGU to zero. An impairment charge of £2,309 million was recognised in the Broadcast & Online CGU in 2008, as a result of the downturn in the short-term outlook for the advertising market. The current year impairment review, set out above, results in significant headroom in excess of the 2008 impairment amount. Even though the advertising market has substantially improved since then and the impaired assets are still owned and operated by the Group, due to accounting rules the impairment cannot be reversed. A pre-tax market discount rate of 9.5% (2016: 10.4%) has been used in discounting the projected cash flows. SDN Goodwill was recognised when the Group acquired SDN (the licence operator for DTT Multiplex A) in 2005. It

represented the wider strategic benefits of the acquisition specific to the Group, principally the enhanced ability Financial Statements to promote Freeview as a platform, business relationships with the channels which are on Multiplex A and additional capacity available from 2010. The main assumptions on which the forecast cash flows arebased are: income to be earned from renewals of medium- term contracts; the market price of available multiplex video streams; and the pre-tax market discount rate. These assumptions have been determined by using a combination of current contract terms, recent market transactions and in-house estimates of video stream availability and pricing. No impairment was identified. As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified (2018: -10% growth, 2019: 0% growth). The Directors believe that currently no reasonably possible change in the cash flow and availability assumptions would reduce the headroom in this CGU to zero. A pre-tax market discount rate of 11.4% (2016: 11.7%) has been used in discounting the projected cash flows. ITV Studios The goodwill for ITV Studios has arisen as a result of the acquisition of production businesses since 1999. Significant balances were created from the acquisition by Granada of United News and Media’s production businesses in 2000 and the merger of Granada and Carlton in 2004 to form ITV plc. ITV Studios goodwill also includes the goodwill arising from recent acquisitions since 2012, with the largest acquisitions being Leftfield in 2014, followed by Talpa in 2015. information Additional The key assumptions on which the forecast cash flows for the whole CGU were based include revenue (including international revenue and the ITV Studios share of ITV output, growth in commissions and hours produced), margins and the pre-tax market discount rate. These assumptions have been determined by using a combination of extrapolation of historical trends within the business, industry estimates and in-house estimates of growth rates in all markets. No impairment was identified. As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified (2018: -10% growth, 2019: 0% growth). The Directors believe that currently no reasonably possible change in the cash flow assumptions would reduce the headroom in this CGU to zero. A pre-tax market discount rate of 10.8% (2016: 11.6%) has been used in discounting the projected cash flows. Following the acquisitions made by ITV Studios in 2017, the Directors considered how assets and resources are shared across the ITV Studios division and the level of integration within the management structure for the purposes of reporting and strategic decision-making. They concluded that a single ITV Studios CGU continues to remain appropriate.

147 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

3.4 Keeping The following section outlines what the Group has acquired in the year. Acquisitions it simple Most of the deals are structured so that a large part of the payment made to the sellers (‘consideration’) is determined based on future performance. This is done so that the Group can both align incentives for growth, while reducing risk so that total consideration reflects actual performance, not expected. IFRS accounting standards require some of this consideration to be included in the purchase price used in determining goodwill (‘contingent consideration’). Examples of contingent consideration include top-up payments and recoupable performance adjustments. Any remaining consideration is required to be recognised as a liability or expense outside of acquisition accounting (put option liabilities and employment- linked contingent payments known as ‘earnout’ payments). The Group considers the income statement impact of all consideration to be capital in nature and so excludes it from adjusted profit. Therefore, for each acquisition below, the distinction between the types of consideration has been explained in detail.

Acquisitions During the year, the Group made payments totalling £54 million for five acquisitions. All acquisitions have been included in the results of the ITV Studios operating segment. The businesses fit with the strategy of strengthening the Group’s existing position as a producer for major television networks in the UK, Europe, US and OTT platforms. Tetra Media Studios SAS On 28 February 2017, the Group purchased 65.04% of the share capital of Tetra Media Studios SAS, a French television production group which specialises in drama, including flagship crime series Profilage, now in its seventh series, and political crime thriller Les Hommes de l’Ombre. Tomorrow ITV Studios LLC On 1 April 2017, the Group gained control of Tomorrow ITV Studios LLC due to the conversion of its 75% preference share capital into 75% ordinary share capital. The company produced Aquarius, a US period crime series, which aired on NBC, and is producing Snowpiercer, an action sci-fi drama series, expected to be released in the US in 2018. World Productions Limited On 30 April 2017, the Group purchased 92% of the share capital of World Productions Limited, a company which specialises in producing drama series with titles including Line of Duty, an award-winning British police crime drama, and Born to Kill, a British thriller television mini-series. Elk Production AB On 21 June 2017, the Group acquired 96% of the share capital of Elk Production AB. Elk is one of the leading independent production companies in Sweden. Key titles produced by the company include Ninja Warrior, an obstacle course competition series, Dessertmästarna, a dessert cooking competition, and award-winning TV series Wahlgrens and Parneviks. Cattleya S.r.l. On 11 October 2017, the Group purchased 51% of the share capital of Cattleya Srl, an Italian scripted production company behind international hit TV dramas Gomorrah, Romanzo Criminale and Suburra, Netflix’s first Italian original TV series. Acquisition accounting: Put and call options have been granted over the non-controlling interest of all five acquisitions, exercisable over the next two to seven years. The total maximum consideration for the acquisitions is capped at £418 million (undiscounted). All future payments are dependent on future performance of the business and linked to ongoing employment. Goodwill totalling £85 million arising on these acquisitions is not expected to be deductible for tax purposes and represents the value placed on the opportunity to grow the content produced by the Group.

148 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

Acquisitions in 2016 In 2016, the Group completed the acquisition of UTV Limited, which has been included in the results of the Broadcast & Online operating segment. The business fits with the strategy of strengthening the Group’s free-to-air business and enables it to run a more efficient network. The following section provides a summary of the acquisition. UTV Limited On 29 February 2016, the Group acquired a 100% controlling interest in UTV Limited which, together with its 100% subsidiary UTV Ireland Limited, owned the television assets of UTV Media plc, for cash consideration of £100 million. UTV is the market-leading commercial broadcaster in Northern Ireland, broadcasting ITV content alongside high-quality Governance local programming. The strategic rationale for the acquisition was to purchase the Northern Irish Channel 3 licence. Before ITV’s acquisition, UTV Limited launched a new dedicated channel for the Republic of Ireland in 2015 via its subsidiary, UTV Ireland Limited. Management concluded that the best prospect of delivering a strong and sustainable Irish broadcaster was to bring UTV Ireland under common ownership with TV3. ITV therefore sold the company to Virgin Media, owner of TV3, on 30 November 2016, for consideration of €10 million. Acquisition accounting: Intangibles, being the value placed on brands and licences, of £58 million were identified and goodwill was valued at £44 million. Goodwill represents the value placed on the opportunity to diversify and grow the business by the Group. The goodwill arising on acquisition is not expected to be deductible for tax purposes. Other fair value adjustments have been made to the opening balance sheet, though none of them are individually significant. Financial Statements Additional information Additional

149 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

Effect of acquisition The acquisitions noted above had the following impact on the Group assets and liabilities:

2017 2016 £m Total* Total Consideration transferred: Initial consideration (net of cash acquired) (Note A) 35 97 Total consideration 35 97

Fair value of previously held preference shares (Note B) 29 –

Fair value of net assets acquired: Property, plant and equipment 11 4 Intangible assets 21 58 Deferred tax liabilities (8) (11) Deferred tax assets 6 – Inventory 60 – Trade and other receivables 49 5 Trade and other payables (100) (7) Borrowings (35) – Net assets held for sale – 4 Fair value of net assets 4 53

Non-controlling interest measured at fair value (Note C) 25 – Goodwill 85 44

Other information Present value of the expected liability on put options 23 – Present value of the expected earnout payment at acquisition 11 –

Contributions to the Group’s performance: From date of acquisition Revenue 59 27 EBITA before exceptionals – 8 Proforma – January to December Revenue 131 33 EBITA before exceptionals – 9 * Provisional values as the acquisition accounting is finalised in the 12 month period following acquisition. Note A: Consideration for all acquisitions is net of cash acquired and estimated debt and working capital settlements. Cash acquired during the period is £19 million (2016: £3 million). Note B: The acquisition of Tomorrow Studios was effected by the right to convert of the Group’s non-controlling preference shares into a controlling stake of ordinary shares. On change of control, the IFRS accounting standards require the Group to fair value the previously held preference shares and include within the calculation of goodwill. Note C: Non-controlling interest arises where the Group acquires less than 100% of the equity interest in a business, but obtains control.

150 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

3.5 Keeping The Group holds non-controlling interests in a number of different entities. Investments it simple Accounting for these investments, and the Group’s share of any profits and losses, depends on the level of control or influence the Group is granted via its interest. The three principal types of non-consolidated investments are: joint arrangements (joint ventures or joint operations), associates and available-for-sale investments. A joint arrangement is an investment where the Group has joint control, with one

or more third parties. An associate is an entity over which the Group has significant Governance influence (i.e. power to participate in the investee’s financial and operating decisions). Any other investment is an available-for-sale investment.

Accounting policies For joint ventures and associates, the Group applies equity accounting. Under this method, it recognises the investment in the entity at cost and subsequently adjusts this for its share of profits or losses, which are recognised in the income statement within non-operating items and included in adjusted profit. Where the Group has invested in associates by acquiring preference shares or convertible debt instruments, the share of profit recognised is usually £nil as no equity interest exists. Available-for-sale investments are held at fair value unless the investment is a start-up business, in which case it is valued at cost and assessed for impairment. The carrying amount of each category of our investments is represented as follows:

2017 2016 £m £m Joint ventures 2 4

Associates 68 60 Financial Statements Available-for-sale investments 4 12 74 76

The carrying amount of associates has increased in the year due to investments made in Blumhouse and Circle of Confusion, two independent studios focusing on original premium scripted and unscripted programming. This was offset by the acquisition of a controlling stake in ITV Tomorrow Studios, in which the Group previously held an investment (see note 3.4). Further smaller investments have been made in line with Group’s strategy to grow the international content business. Please refer to page 188 for the list of principal investments held at 31 December 2017.

Additional information Additional

151 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

3.6 Keeping A provision is recognised by the Group where an obligation exists relating to events Provisions it simple in the past and it is probable that cash will be paid to settle it. A provision is made where the Group is not certain how much cash will be required to settle a liability, so an estimate is required. The main estimates relate to the cost of holding properties that are no longer in use by the Group, the likelihood of settling legal claims and contracts the Group has entered into that are now unprofitable.

Accounting policies A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation arising from past events, it is probable cash will be paid to settle it and the amount can be estimated reliably. Provisions are determined by discounting the expected future cash flows by a rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a financing cost in the income statement. The value of the provision is determined based on assumptions and estimates in relation to the amount and timing of actual cash flows, which are dependent on future events. Provisions The movements in provisions during the year are as follows:

Contract Property Legal and Other provisions provisions provisions Total £m £m £m £m At 1 January 2017 – 2 21 23 Additions 3 3 – 6 Utilised – – (5) (5) Released – (1) – (1) At 31 December 2017 3 4 16 23

Provisions of £16 million are classified as current liabilities (2016: £19 million). Unwind of the discount is £nil in 2017 and 2016. Contract provisions comprise onerous commitments on playout and related services that are not expected to be utilised over the remaining contract period. Property provisions primarily relate to expected dilapidation costs at temporary rental properties. Legal and Other provisions totalling £16 million (2016: £21 million) primarily relate to potential liabilities that may arise as a result of Boxclever having been placed into administrative receivership, most of which relate to pension arrangements. In 2011, the Determinations Panel of the Pensions Regulator determined that Financial Support Directions should be issued against certain Group companies, which would require the Group to put in place financial support for the Boxclever Scheme. The Group is challenging this in the Upper Tribunal. The timing of the Upper Tribunal’s decision is not yet clear. The Directors, having taken advice, believe that they have a strong case. There are significant points of legal principle at issue and consequently any potential liability may take a significant period to resolve. The Directors continue to believe that the provision held is appropriate. The utilisation of provisions during the year was due to settlement of various other legal matters.

152 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

3.7 Keeping In this note, we explain the accounting policies governing the Group’s pension Pensions it simple schemes, followed by analysis of the components of the net defined benefit pension deficit, including assumptions made, and where the related movements have been recognised in the financial statements. In addition, we have placed text boxes to explain some of the technical terms used in the disclosure. What are the Group’s pension schemes?

There are two types of pension schemes. A ‘Defined Contribution’ scheme that Governance is open to ITV employees, and a number of ‘Defined Benefit’ schemes that have been closed to new members since 2006 and closed to future accrual in 2017. In 2016, on acquisition of UTV Limited, the Group took over the UTV Defined Benefit Scheme, which remains open to future accrual. What is a Defined Contribution scheme? The Defined Contribution scheme is where the Group makes fixed payments into a separate fund on behalf of those employees participating in saving for their retirement. ITV has no further obligation to the participating employee and the risks and rewards associated with this type of scheme are assumed by the members rather than the Group. Although the Trustee of the scheme makes available a range of investment options, it is the members’ responsibility to make investment decisions relating to their retirement benefits. What is a Defined Benefit scheme? In a Defined Benefit scheme, members receive payments during retirement, the value of which is dependent on factors such as salary and length of service. The Group

makes contributions to the scheme, a separate trustee-administered fund that is not Financial Statements consolidated in these financial statements, but is reflected on the defined benefit pension deficit line on the consolidated statement of financial position. It is the responsibility of the Trustee to manage and invest the assets of the Scheme and its funding position. The Trustee, appointed according to the terms of the scheme’s documentation, is required to act in the best interest of the members and is responsible for managing and investing the assets of the scheme and its funding position. The Group has a Pension Steering Committee, which liaises with the Trustee and has oversight of the management of the pension schemes and underlying risks. In the event of poor returns, the Group may need to address this through a combination of increased levels of contribution or by making adjustments to the scheme. Schemes can be funded, where regular cash contributions are made by the employer into a fund which is invested, or unfunded, where no regular money or assets are required to be put aside to cover future payments but in some cases security is required. Additional information Additional The accounting defined benefit pension deficit (IAS 19) is different from the actuarial valuation deficit as they are calculated on the basis of different assumptions, such as discount rate. The accounting defined benefit pension deficit (IAS 19) figure is calculated as at the balance sheet date, and the actuarial deficit was calculated for the last triennial valuation as of 1 January 2014, with the 1 January 2017 valuation expected to be agreed in early 2018.

Accounting policies Defined contribution scheme Obligations under the Group’s defined contribution schemes are recognised as an operating cost in the income statement as incurred. For 2017, total contributions expensed were £18 million (2016: £16 million).

153 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

Defined benefit scheme The Group’s obligation in respect of the Defined Benefit Scheme (the ‘Scheme’) is calculated by estimating the amount of future retirement benefit that eligible employees (‘members’) have earned during their services. That benefit payable in the future is discounted to today’s value and then the fair value of scheme assets is deducted to measure the defined benefit pension position. The liabilities of the Scheme are measured by discounting the best estimate of future cash flows to be paid using the ‘projected unit’ method. These calculations are complex and are performed by a qualified actuary. There are many judgements and estimates necessary to calculate the Group’s estimated liabilities, the main assumptions are set out later in this section. Movements in assumptions during the year are called ‘actuarial gains and losses’ and these are recognised in the period in which they arise through the statement of comprehensive income. The latest triennial valuation of the ITV Pension Scheme was undertaken as at 1 January 2014 by an independent actuary appointed by the Trustee of the Scheme and agreed in early 2016. The next triennial valuation will be as at 1 January 2017 and is expected to be agreed during H1 2018. This will drive subsequent contribution rates. An unfunded scheme in relation to four former Granada executives is accounted for under IAS 19 and the Group is responsible for meeting the pension obligations as they fall due. The unfunded scheme has additional security compared with the ITV main scheme, in the form of a charge over gilts held by the Group. Therefore, the £38 million securitised gilts have been classified as other pension assets to reflect the Group’s net pension deficit. In December 2016, following a member consultation, the Group decided to close the ITV Pension Scheme to future benefit accrual with effect from 28 February 2017. Members’ benefits are no longer subject to a capped pensionable salary; the benefits are now linked to statutory revaluation until retirement. This decision gave rise to a one-off, non-cash £19 million curtailment charge recognised in 2016. On 29 February 2016, the Group acquired 100% of the assets and liabilities of UTV Limited, including responsibility for a defined benefit pension scheme. Due to the size of the scheme, within this note the Directors present the results and position of the UTV Scheme combined with the existing ITV Schemes. The next triennial valuation will be as at 30 June 2017 and is expected to be agreed during H1 2018. Unless otherwise stated, references to ‘the Schemes’ within this note refer to the ITV Pension Scheme, the unfunded scheme and the UTV Scheme combined. The sponsoring company of the ITV Pension Scheme is ITV Services Limited, the unfunded scheme is Granada Group Limited and the UTV Scheme is sponsored by UTV Limited. The defined benefit pension deficit Net pension deficit of £83 million at 31 December 2017 (2016: £328 million) is stated after including the unfunded scheme security asset of £38 million (2016: £39 million). The totals recognised in the current and previous years are:

2017 2016 £m £m Total defined benefit scheme obligations (3,987) (4,200) Total defined benefit scheme assets 3,866 3,833 Defined benefit pension deficit (IAS 19) (121) (367)

Presented as: Defined benefit pension surplus * 16 – Defined benefit pension deficit (137) (367) Defined benefit pension deficit (IAS 19) (121) (367)

Other pension asset 38 39 Net pension deficit (83) (328) * The defined benefit pension surplus relates solely to the UTV Scheme. The defined benefit scheme assets in the UTV Scheme were £130 million as at 31 December 2017 (2016: £117 million) and the defined benefit scheme obligations were £114 million (2016: £117 million).

The remaining sections provide further detail of the value of the Scheme’s assets and liabilities, how these are accounted for and the impact on the financial statements.

154 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

Defined benefit scheme obligations

Keeping What causes movements in the defined benefit pension obligations? it simple The areas that impact the defined benefit obligation (the pension scheme liabilities) position at the year end are as follows:

• Current service cost – the cost to the Group of the future benefits earned by members that relates to the members’ service in the current year. This is charged to operating costs in the income statement. Governance • Past service cost – is a change in present value of the benefits built up by the members in the prior periods; can be positive or negative resulting from changes to the existing plan as a result of an agreement between ITV and employees or as a result of significant reduction by ITV in the number of employees covered by the plan (curtailment). • Interest cost – the pension obligations payable in the future are discounted to the present value at year end. A discount factor is used to determine the current value today of the future cost. The interest cost is the unwinding of one year’s movement in the present value of the obligation. It is broadly determined by multiplying the discount rate at the beginning of the period by the updated present value of the obligation during the period. The discount rate is a key assumption explained later in this section. This interest cost is recognised through net financing costs in the income statement (see note 4.4). • Actuarial gains or losses – there are broadly two causes of actuarial movements: ‘experience’ adjustments, which arise when comparing assumptions made when estimating the liabilities and what has actually occurred, and adjustments resulting from changes in actuarial assumptions e.g. movements in corporate bond yields or Financial Statements change in mortality. Key assumptions are explained in detail later in this section. Actuarial gains or losses are recognised through other comprehensive income. • Benefits paid – any cash benefits paid out by the Scheme will reduce the obligation. • One-off events – for example, the acquisition of UTV Limited set out above.

The movement in the present value of the Group’s defined benefit obligation is analysed below:

2017 2016 £m £m Defined benefit obligation at 1 January 4,200 3,446 Current service cost 2 7 Curtailment charge – 19 Interest cost 107 131 Actuarial (gain)/loss (121) 664 UTV acquisition – 98 information Additional Benefits paid (201) (165) Defined benefit obligation at 31 December 3,987 4,200

Of the above total defined benefit obligation at 31 December 2017, £58 million relates to unfunded schemes (2016: £51 million), including the scheme in relation to the four former Granada executives.

155 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

Assumptions used to estimate the Scheme obligations

Keeping What are the main assumptions used to estimate the Scheme obligations? it simple The main assumptions are: • An estimate of increases in pension payments; • The life expectancy of members; • The effect of inflation on all these factors; • The discount rate used to estimate the present day fair value of these obligations; • Future salary levels for the UTV Scheme; and • Future pensionable salary levels for the UTV Scheme. How do we determine the appropriate assumptions? The Group takes independent actuarial advice relating to the appropriateness of the assumptions used. IFRS requires that we estimate a discount rate by reference to high-quality fixed income investments in the UK that match the estimated term of the pension obligations. The inflation assumption has been set by looking at the difference between the yields on fixed and index-linked Government bonds. The inflation assumption is used as a basis for the remaining financial assumptions, except where caps have been implemented. The discount rate has therefore been obtained using the yields available on AA rated corporate bonds, which match projected cash flows. The Group’s estimate of the weighted average term of the liabilities is 15 years (2016: 17 years).

The principal assumptions used in the Scheme’s valuations at the year end were:

2017 2016 Discount rate for: Past service liabilities 2.50% 2.60% Future service liabilities 2.50% 2.70% Inflation assumption for: Past service liabilities 3.15% 3.25% Future service liabilities 3.15% 3.20% Rate of pensionable salary increases UTV Pension Scheme 3.65% 3.75% Rate of increase in pension payment (LPI1 5% pension increases) 2.95% 3.15% Rate of increase to deferred pensions (CPI) 2.15% 2.25% 1. Limited Price Index.

The table below reflects published mortality investigation data in conjunction with the results of investigations into the mortality experience of Scheme members. The assumed life expectations on retirement are:

2017 2017 2016 2016 Retiring today at age 60 65 60 65 Males 27.1 22.5 27.1 22.4 Females 29.2 24.4 29.3 24.5 Retiring in 20 years at age 60 65 60 65 Males 28.7 23.9 28.8 23.9 Females 30.8 25.9 31.0 26.1

The net pension deficit is sensitive to changes in assumptions. Those are disclosed further in this section.

156 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

Total defined benefit scheme assets

Keeping The Scheme holds assets across a number of different classes, which are managed it simple by the Trustee, who consults with the Group on changes to its investment policy. What are the pension Scheme assets? At 31 December 2017, the Scheme’s assets were invested in a diversified portfolio that consisted primarily of equity and debt securities. The tables below set out the major categories of assets. Governance Financial instruments are in place in order to provide protection against changes in market factors (interest rates and inflation), which could act to increase the net pension deficit. One such instrument is the longevity swap, which the Scheme transacted in 2011 to obtain protection against the effect of increases in the life expectation of the majority of pensioner members at that date. Under the swap, the Trustee agreed to make pre-determined payments in return for payments to meet the specified pension obligations as they fall due, irrespective of how long the members and their dependants live. The difference in the present values of these two streams of payments is reflected in the Scheme assets. The swap had a nil valuation at inception and, using market-based assumptions, is subsequently adjusted for changes in the market life expectancy and market discount rates, in line with its fair value. How do we measure the pension Scheme assets? Defined benefit scheme assets are measured at their fair value and can change due

to the following: Financial Statements • Interest income on scheme assets – this is determined by multiplying the fair value of the Scheme assets by the discount rate, both taken as of the beginning of the year. This is recognised through net financing costs in the income statement; • Return on assets arise from differences between the actual return and interest income on Scheme assets and are recognised through other comprehensive income; • Employer’s contributions are paid into the Scheme to be managed and invested; and • Benefits and administrative expenses paid out by the Schemes will lower the fair value of the Scheme’s assets.

The movement in the fair value of the defined benefit scheme’s assets is analysed below:

2017 2016 £m £m

Fair value of Scheme assets at 1 January 3,833 3,270 information Additional Interest income on Scheme assets 98 126 Return on assets, excluding interest income 51 416 Employer contributions 90 93 UTV acquisition – 98 Benefits paid (201) (165) Administrative expenses paid (5) (5) Fair value of Scheme assets at 31 December 3,866 3,833

The actual return on the Scheme’s assets, being the sum of the interest income on Scheme assets and return on Scheme assets, for the year ended 31 December 2017 was £149 million (2016: £542 million).

157 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

How are the Scheme’s assets invested? At 31 December 2017, the Scheme’s assets were invested in a diversified portfolio that consisted primarily of equity and debt securities. The Trustee is responsible for deciding the investment strategy for the scheme’s assets, although changes in investment policies require consultation with the Group. The assets are invested in different classes to hedge against unfavourable movements in the funding obligation. When selecting the mix of assets to hold, and considering their related risks and returns, the Trustee will weigh up the variability of returns against the target long-term rate of return on the overall portfolio. The fair value of the Scheme’s assets is shown in the following table by major category:

Market value Market value 2017 2016 £m £m Liability hedging assets Fixed interest gilts 633 678 Index-linked interest gilts 1,456 1,135 Interest rate and inflation hedging derivatives (swaps and repos) 279 270 2,368 61% 2,083 54%

Other bonds 865 22% 784 20%

Return seeking investments Quoted equities 260 633 Infrastructure 88 95 Property 109 62 Hedge funds/alternatives 193 222 650 17% 1,012 27% Other investments Cash and cash equivalents 240 183 Insurance policies 41 42 Longevity swap fair value (298) (271) (17) – (46) (1%) Total Scheme assets 3,866 100% 3,833 100%

Included in the above are overseas assets of £978 million (2016: £1,304 million), comprised of quoted equities of £244 million (2016: £565 million) and bonds of £734 million (2016: £739 million). The Trustee entered a longevity swap in 2011, which provides cash flow certainty by hedging the risk of increasing life expectancy over the next 70 years for 11,700 of current pensioners at inception covering £1.7 billion of the pension obligation. The fair value of the longevity swap equals the discounted value of the projected net cash flows resulting from the contract and has reduced in value in 2017, mainly due to a decrease in gilts yields over the year.

158 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

Defined pension deficit sensitivities

Which assumptions have the biggest impact on the Scheme? Keeping It is important to note that comparatively small changes in the assumptions used it simple may have a significant effect on the consolidated income statement and statement of financial position. This ‘sensitivity’ to change is analysed below to demonstrate

how small changes in assumptions can have a large impact on the estimation of the defined benefit pension deficit. The Trustee manages the investment, mortality and

inflation risks to ensure the pension obligations are met as they fall due. Governance The investment strategy is aimed at the valuation obligation rather than IAS 19 defined pension deficit value. As such, the effectiveness of the risk hedging strategies on a valuation basis will not be the same as on an accounting basis. Those hedging strategies have significant impact on the movement in the net pension deficit as assumptions change, offsetting the impacts on the obligation disclosed below. In practice, changes in one assumption may be accompanied by offsetting changes in another assumption (although this is not always the case). Changes in the assumptions may occur at the same time as changes in the market value of Scheme assets, which may or may not offset the changes in assumptions. Changes in assumptions have a different level of impact as the value of the net pension deficit fluctuates, because the relationship between them is not linear.

The analysis below considers the impact of a single change in principal assumptions on the defined benefit obligation

while keeping the other assumptions unchanged and does not take into account any risk hedging strategies: Financial Statements

Assumption Change in assumption Impact on defined benefit obligation Increase by 0.1% Decrease by £60 million Discount rate Decrease by 0.1% Increase by £60 million Increase by 0.1% Increase by £15 million Rate of inflation (Retail Price Index) Decrease by 0.1% Decrease by £25 million Increase by 0.1% Increase by £10 million Rate of inflation (Consumer Price Index) Decrease by 0.1% Decrease by £10 million Life expectations Increase by one year Increase by £110 million

The sensitivity analysis has been determined by extrapolating the impact on the defined benefit obligation at the year end with changes in key assumptions that might reasonably occur.

While the Scheme’s risk hedging strategy is aimed at a valuation basis, the Directors estimate that on an accounting basis it would significantly reduce the above impact on the defined benefit obligation.

In particular, an increase in assumption of life expectations by one year would benefit from an estimated increase of the value of the longevity swap by £100 million, reducing the net impact on the defined pension deficit to £10 million. information Additional

Further, the ITV Pension Scheme invests in UK Government bonds and interest rate and inflation swap contracts and therefore movements in the defined benefit obligation are typically offset, to an extent, by asset movements.

159 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 3: Operating Assets and Liabilities continued

Keeping What was the impact of movements on the Scheme’s assets and liabilities? it simple The sections above describe how the Scheme obligations and assets are comprised and measured. The following section sets out the impact of various movements and expenses on the Scheme on the Group’s financial statements.

Amounts recognised through the income statement Amounts recognised through the income statement are as follows:

2017 2016 £m £m Amount charged to operating costs: Current service cost (2) (7) Scheme administration expenses (5) (5) (7) (12) Amount charged to net financing costs: Net interest on defined benefit obligation (9) (5)

Amount charged to exceptional costs: Curtailment cost – (19)

Total charged in the consolidated income statement (16) (36)

Amounts recognised through the consolidated statement of comprehensive income The amounts recognised through the consolidated statement of comprehensive income/(cost) are:

2017 2016 £m £m Remeasurement gains/(losses): Return on scheme assets excluding interest income 51 416 Actuarial gains/(losses) on liabilities arising from change in: – experience adjustments 138 31 – financial assumptions 12 (868) – demographic assumptions (29) 173 121 (664) Total recognised in the consolidated statement of comprehensive income 172 (248)

The £121 million actuarial gain on the Scheme’s liabilities was principally due to an experience gain of £138 million based on the use of updated membership data underlying the Trustee’s triennial valuation as at 1 January 2017. The true-up of the membership data has resulted in a decrease in the liabilities. The £51 million gain on the Scheme’s assets primarily results from increases in the market values of return-seeking investments, which has led to assets outperforming expectations.

160 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 3: Operating Assets and Liabilities

Strategic Report

Addressing the defined benefit pension deficit

Keeping The Group works closely with the Trustee to agree appropriate levels of funding it simple for the Scheme. This involves agreeing a Schedule of Contributions at each triennial valuation, which specifies the contribution rates for the employer and, where relevant, scheme members and the date these contributions are due. A recovery plan setting out the steps that will be taken to address a funding shortfall is also agreed.

In the event that the Group’s defined benefit scheme is in a net liability position, Governance the Directors must take steps to manage the size of the deficit. Apart from the funding agreements mentioned above, this could involve pledging additional assets to the Scheme, as was the case in the SDN and London Television Centre pension funding partnerships.

The levels of ongoing contributions to the Scheme are based on the current service costs (as assessed by the Scheme Trustee) and the expected future cash flows of the Scheme. Normal employer contributions in 2018 for UTV Scheme current service and administration expenses are expected to be in the region of £5 million (2017: £6 million) and deficit funding contributions for the main ITV scheme in 2018 are expected to be £66 million (2017: £66 million), assuming current contribution rates continue as agreed with the Trustee. The Group has two asset-backed pension funding agreements with the Trustee and makes annual payments of £11 million for 12 years from 2011 and £2.5 million, increasing by 5% per annum until 2038. In 2018, a payment of £14 million is expected as a result of those agreements. IFRIC 14 clarifies how the asset ceiling rules should be applied if the Schemes are expected to be in surplus, for example Financial Statements as a result of deficit funding agreements. The Group has determined that it has an unconditional right to a refund of any surplus assets if the Schemes are run off until the last member dies. On this basis, IFRIC 14 rules do not cause any change in the pension deficit accounting or disclosures. Additional information Additional

161 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 4: Capital Structure and Financing Costs

In this This section outlines how the Group manages its capital structure and related section financing costs, including its balance sheet liquidity and access to capital markets. The Directors determine the appropriate capital structure of ITV, specifically how much is raised from shareholders (equity) and how much is borrowed from financial institutions (debt) in order to finance the Group’s activities both now and in the future. Maintaining capital discipline and balance sheet efficiency remains important to the Group. Any potential courses of action will take into account the Group’s liquidity needs, flexibility to invest in the business, pension deficit initiatives and impact on credit ratings. The Directors consider the Group’s capital structure and dividend policy at least twice a year ahead of announcing results and do so in the context of its ability to continue as a going concern, to execute the strategy and to invest in opportunities to grow the business and enhance shareholder value. A Tax and Treasury committee acting under delegated authority from the Board, approves certain financial transactions and monitors compliance with the Group’s tax and treasury policies.

4.1 Keeping Net cash/(debt) is the Group’s key measure used to evaluate total cash resources Net debt it simple net of the current outstanding debt. Adjusted net debt is also monitored by the Group and more closely reflects how credit agencies see the Group’s gearing. To arrive at the adjusted net debt amount, we add our total undiscounted expected contingent payments on acquisitions, our net pension deficit and our undiscounted operating lease commitments. A full analysis and discussion of adjusted net debt is included in the Operating and Performance Review. The tables below analyse movements in the components of net cash during the year:

Currency and 1 January non-cash 31 December 2017 Net cash flow Acquisitions* movements 2017 £m £m £m £m £m Cash 549 (438) 19 (9) 121 Cash equivalents 12 (7) – – 5 Total cash and cash equivalents 561 (445) 19 (9) 126 Loans and facilities due within one year (161) 115 (26) (4) (76) Finance leases due within one year (4) 4 – – – Loans and facilities due after one year (1,035) 100 (9) (38) (982) Total debt (1,200) 219 (35) (42) (1,058)

Currency component of swaps held against euro denominated bonds 2 – – 18 20 Net debt (637) (226) (16) (33) (912)

* Balances as at acquisition date.

162 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 4: Capital Structure and Financing Costs

Strategic Report

Currency and 1 January non-cash 31 December 2016 Net cash flow Acquisitions* Reclassifications movements 2016 £m £m £m £m £m £m Cash 238 301 3 – 7 549 Cash equivalents 56 (6) – (39) 1 12 Total cash and cash equivalents 294 295 3 (39) 8 561 Loans and facilities due within one year (5) 5 – – (161) (161) Finance leases due within one year (6) 6 – – (4) (4) Governance Loans and facilities due after one year (598) (525) – – 88 (1,035) Finance leases due after one year (4) – – – 4 – Total debt (613) (514) – – (73) (1,200)

Currency component of swaps held against euro denominated bonds – – – – 2 2 Net debt (319) (219) 3 (39) (63) (637)

* Balances as at acquisition date.

Cash and cash equivalents Included within cash equivalents is £nil (2016: £4 million), the use of which is restricted to meeting finance lease commitments under programme sale and leasebacks (see note 4.2). Loans and facilities due within one year At various periods during the year, the Group drew down on the Revolving Credit Facility (‘RCF’) to meet short-term funding requirements. At 31 December 2017, the Group had drawings of £60 million under the RCF (2016: £nil).

The maximum draw down of the RCF during the year was £390 million (2016: £500 million). Financial Statements The Group also had an unsecured £161 million Eurobond that matured in January 2017 and had a coupon of 6.125%. Loans and loan notes due after one year In 2016, the Group had a £100 million bilateral loan facility, which was repaid in full in June 2017. The Group has issued the following Eurobonds: • A seven-year €600 million Eurobond at a fixed coupon of 2.125%, which matures in September 2022; and • A seven-year €500 million Eurobond at a fixed coupon of 2.0%, which will mature in December 2023. The bond issued in December 2016 has been swapped back to sterling using a cross-currency interest swap. The resulting fixed rate payable is c. 3.5%.

Additional information Additional

163 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 4: Capital Structure and Financing Costs continued

4.2 Keeping The Group borrows money from financial institutions in the form of bonds, bank Borrowings it simple facilities and other financial instruments. The interest payable on these instruments is shown in the net financing costs note in note 4.4. and finance leases There are Board-approved policies in place to manage the Group’s financial risks. Macroeconomic market risks, which impact currency transactions and interest rates, are discussed in note 4.3. Credit and liquidity risks are discussed below. • Credit risk: the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations; and • Liquidity risk: the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is required to disclose the fair value of its debt instruments. The fair value is the amount the Group would pay a third party to transfer the liability. It is sourced in the capital markets. This estimation of fair value is consistent with instruments valued under level 1 in note 4.5.

Accounting policies Borrowings Borrowings are recognised initially at fair value less directly attributable transaction costs, with subsequent measurement at amortised cost using the effective interest rate method. Under the amortised cost method, the difference between the amount initially recognised and the redemption value is recorded in the income statement over the period of the borrowing on an effective interest rate basis. Finance leases Historically, ITV has entered into sale and leaseback agreements in relation to certain programme titles. Related outstanding sale and leaseback obligations, which comprise the principal and accrued interest, are included within borrowings. The finance-related element of the agreement is charged to the income statement over the term of the lease on an effective interest basis. Sale and leaseback obligations are secured against an equivalent cash balance held within cash and cash equivalents. Managing credit and liquidity risk Credit risk The Group’s maximum exposure to credit risk is represented by the carrying amount of derivative financial assets (see note 4.3), trade receivables (see note 3.1.3), and cash and cash equivalents (see note 4.1). Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The majority of trade receivables relate to airtime sales contracts with advertising agencies and advertisers. Credit insurance has been taken out against these companies to minimise the impact on the Group in the event of a possible default. The Group also reviews other significant receivables and will seek to take out credit insurance on an individual basis where appropriate. In 2016, the Group signed a £100 million non-recourse receivables purchase agreement. As at 31 December 2017, £10 million was available under the agreement (2016: £65 million). The receivables in relation to the invoices sold were derecognised and the Group collects cash on behalf of the counterparty as payments fall due. Cash The Group operates investment guidelines with respect to surplus cash that emphasise preservation of capital. The guidelines set out procedures and limits on counterparty risk and maturity profile of cash placed. Counterparty limits for cash deposits are largely based upon long-term ratings published by the major credit rating agencies. Deposits longer than 12 months require the approval of the Board.

164 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 4: Capital Structure and Financing Costs

Strategic Report

Borrowings ITV is rated as investment grade by Moody’s and S&P. ITV’s credit ratings, the cost of credit default swap hedging and the absolute level of interest rates are key determinants in the cost of new borrowings for ITV. Liquidity risk The Group’s financing policy is to fund itself for the medium to long-term by using debt instruments with a range of maturities and to ensure access to appropriate short-term borrowing facilities with a minimum of £250 million of undrawn facilities available at all times.

Long-term funding comes from the UK and European capital markets, while any short to medium-term debt Governance requirements are provided through bank credit facilities totalling £930 million (see below). Management monitors rolling forecasts of the Group’s liquidity reserve (comprising undrawn bank facilities and cash and cash equivalents) on the basis of expected cash flows. This monitoring includes financial ratios to assess any possible future impact on credit ratings and headroom and takes into account the accessibility of cash and cash equivalents. The Group has a £630 million Revolving Credit Facility with a group of relationship banks. This facility, which was amended and extended in December 2016, matures in 2022 and is committed with leverage and interest cover financial covenants. In addition, the Group has £300 million of financial covenant free financing, which runs to 2021. Fair value versus book value The tables below provide fair value information for the Group’s borrowings:

Book value Fair value 2017 2016 2017 2016 Maturity £m £m £m £m Loans due within one year £630 million Revolving Credit Facility Various 60 – 60 –

Other short-term loans Various 16 – 16 – Financial Statements £161 million Eurobond Jan 2017 – 161 – 162 Loans due in more than one year Bilateral loan facility Jun 2018 – 100 – 100 €600 million Eurobond Sept 2022 529 508 560 529 €500 million Eurobond Dec 2023 444 427 461 431 Other long-term loans Various 9 – 9 – 1,058 1,196 1,106 1,222

Finance leases At 31 December 2017, the Group had no finance lease liabilities (2016: £4 million due in one year or less).

Additional information Additional

165 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 4: Capital Structure and Financing Costs continued

4.3 Keeping What is a derivative? Managing it simple A derivative is a type of financial instrument typically used to manage risk. A derivative’s value changes over time in response to underlying variables such market risks: as exchange rates or interest rates and is entered into for a fixed period. A hedge derivative is where a derivative is used to manage exposure in an underlying variable. financial The Group is exposed to certain market risks. In accordance with Board-approved instruments policies, which are set out in this note, the Group manages these risks by using derivative financial instruments to hedge the underlying exposures. Why do we need them? The key market risks facing the Group are: • Currency risk arising from: i. Translation risk, that is the risk in the period of adverse currency fluctuations in the translation of foreign currency profits, assets and liabilities (‘balance sheet risk’) and non-functional currency monetary assets and liabilities (‘income statement risk’); and ii. Transaction risk, that is the risk that currency fluctuations will have a negative effect on the value of the Group’s non-functional currency trading cash flows. A non-functional currency transaction is a transaction in any currency other than the reporting currency of the subsidiary. • Interest rate risk to the Group arises from significant changes in interest rates on borrowings issued at or swapped to floating rates. How do we use them? The Group mainly employs three types of derivative financial instruments when managing its currency and interest rate risk: • Foreign exchange swap contracts are derivative instruments used to hedge income statement translation risk arising from short-term intercompany loans denominated in a foreign currency; • Forward foreign exchange contracts are derivative instruments used to hedge transaction risk so they enable the sale or purchase of foreign currency at a known fixed rate on an agreed future date; and • Cross-currency interest rate swaps are derivative instruments used to exchange the principal and interest coupons in a debt instrument from one currency to another. Analysis of the derivatives used by the Group to hedge its exposure and the various methods used to calculate their respective fair values are detailed in this section.

Accounting policies Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with the movement recorded in the income statement, except where derivatives qualify for cash flow hedge accounting. In this case, the effective portion of a cash flow hedge is recognised in other comprehensive income and presented in the hedging reserve within equity. The cumulative gain or loss is later reclassified to the income statement in the same period as the relevant hedged transaction is realised. Derivatives with positive fair values are recorded as assets and negative fair values as liabilities.

166 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 4: Capital Structure and Financing Costs

Strategic Report

Determining fair value The fair value of forward foreign exchange contracts is determined by using the difference between the contract exchange rate and the quoted forward exchange rate at the reporting date. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and our current creditworthiness, as well as that of our swap counterparties. Third-party valuations are used to fair value the Group’s interest rate derivatives. The valuation techniques use inputs such as interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations between inputs. Governance How do we manage our currency and interest rate risk? Currency risk As the Group expands its international operations, the performance of the business becomes increasingly sensitive to movements in foreign exchange rates, primarily with respect to the US dollar and the euro. The Group’s foreign exchange policy is to use forward foreign exchange contracts to hedge material non-functional currency denominated costs or revenue for up to five years forward. The Group ensures that its net exposure to foreign currency denominated cash balances is kept to a minimal level by using foreign currency swaps to exchange balances back into sterling or by buying or selling foreign currencies at spot rates when necessary. The Group also utilises foreign exchange swaps and cross-currency interest rate swaps both to manage foreign currency cash flow timing differences and to hedge foreign currency denominated monetary items. The Group’s net investments in overseas subsidiaries may be hedged where the currency exposure is considered to be material. The Group designated a portion of its euro borrowings into a net investment hedge against its euro denominated assets following the acquisition of Talpa Media. Financial Statements The following table highlights the Group’s sensitivity to translation risk resulting from a 10% strengthening/weakening in sterling against the US dollar and euro, assuming all other variables are held constant:

2017 – post- 2016 – post- tax profit 2017 – equity tax profit 2016 – equity US dollar £1 million £23 million £3 million £32 million Euro £3 million £17 million £10 million £11 million

The Group’s sensitivity to translation risk for revenue and adjusted EBITA is disclosed in the Finance Review on page 47. The key difference between the foreign currency sensitivity for adjusted EBITA and profit after tax is the impact on the US dollar and euro denominated exceptional costs, including acquisition-related costs, acquired intangible amortisation and net financing cost.

Interest rate risk The Group’s interest rate policy is to allow fixed rate gross debt to vary between 20% and 100% of total gross debt to accommodate floating rate borrowings under the Revolving Credit Facility. At 31 December 2017, the Group’s fixed rate debt represented 92% of total gross debt (2016: 92%). Consequently, Additional information Additional a 1% movement in interest rates on floating rate debt would impact the 2017 post-tax profit for the year by less than £1 million (2016: £2 million). For financial assets and liabilities classified at fair value through profit or loss, the movements in the year relating to changes in fair value and interest are not separated.

167 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 4: Capital Structure and Financing Costs continued

What is the value of our derivative financial instruments? The following table shows the fair value of derivative financial instruments analysed by type of contract. Interest rate swap fair values exclude accrued interest.

Assets Liabilities At 31 December 2017 £m £m Current Foreign exchange forward contracts and swaps – cash flow hedges 4 (1) Foreign exchange forward contracts and swaps – fair value through profit or loss 2 (1) Non-current Cross-currency interest swaps – cash flow hedges 10 – Foreign exchange forward contracts and swaps – cash flow hedges – (1) 16 (3)

Assets Liabilities At 31 December 2016 £m £m Current Foreign exchange forward contracts and swaps – cash flow hedges 6 (1) Foreign exchange forward contracts and swaps – fair value through profit or loss 2 (2) Non-current Cross-currency interest swaps – cash flow hedges – (6) Foreign exchange forward contracts and swaps – cash flow hedges 1 (3) 9 (12)

Cash flow hedges The Group applies hedge accounting for certain foreign currency firm commitments and highly probably cash flows where the underlying cash flows are payable within the next seven years. In order to fix the sterling cash outflows associated with the commitments and interest payments – which are mainly denominated in AUD or euros – the Group has taken out forward foreign exchange contracts and cross-currency interest rate swaps for the same foreign currency amount and maturity date as the expected foreign currency outflow. The amount recognised in other comprehensive income during the period all relates to the effective portion of the revaluation loss associated with these contracts. There was less than £1 million (2016: £1 million) ineffectiveness taken to the income statement and £20 million cumulative gain (2016: £5 million gain) recycled to the income statement in the year. On issuing the 2023 Eurobond, the Group entered into a portfolio of cross-currency interest rate swaps, which swapped the euro principal and fixed rate coupons into sterling. As a result, the Group makes sterling interest payments at a fixed rate. Net investment hedges The Group uses euro denominated debt to partially hedge against the change in the sterling value of its euro denominated net assets due to movements in foreign exchange rates. The fair value of debt in a net investment hedge was £177 million (2016: £168 million). A foreign exchange loss of £6 million (2016: £21 million) relating to the net investment hedges has been netted off within exchange differences on translation of foreign operations as presented on the consolidated statement of comprehensive income.

168 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 4: Capital Structure and Financing Costs

Strategic Report

Undiscounted financial liabilities

Keeping The Group is required to disclose the expected timings of cash outflows for each of its it simple financial liabilities (including derivatives). The amounts disclosed in the table are the contractual undiscounted cash flows (including interest), so will not always reconcile with the amounts disclosed on the statement of financial position. Governance

Total Carrying contractual Less than Between Between Over value cash flows 1 year 1 and 2 years 2 and 5 years 5 years At 31 December 2017 £m £m £m £m £m £m Non-derivative financial liabilities Borrowings (1,058) (1,171) (97) (21) (595) (458) Trade and other payables (1,021) (1,021) (953) (47) (16) (5) Other payables – non-current (21) (21) – (19) (1) (1) Other payables – commitments on acquisitions (161) (292) * (78) (19) (190) (5) Derivative financial instruments Foreign exchange forward contracts and swaps – cash flow hedges Inflow 4 206 148 58 – – Outflow (2) (204) (146) (58) – – Cross-currency swaps – cash flow hedges

Inflow 10 557 11 11 32 503 Financial Statements Outflow – (513) (15) (15) (44) (439) Foreign exchange forward contracts and swaps – fair value through profit or loss Inflow 2 136 124 7 5 – Outflow (1) (135) (123) (7) (5) – (2,248) (2,458) (1,129) (110) (814) (405)

Total Carrying contractual Less than Between Between Over value cash flows 1 year 1 and 2 years 2 and 5 years 5 years At 31 December 2016 £m £m £m £m £m £m Non-derivative financial liabilities Borrowings (1,196) (1,338) (194) (119) (58) (967) Trade and other payables (912) (912) (855) (48) (8) (1) Other payables – non-current (11) (11) – (6) (4) (1) Other payables – commitments on acquisitions (158) (328) * (122) (56) (150) – Derivative financial instruments Additional information Additional Foreign exchange forward contracts and swaps – cash flow hedges Inflow 7 213 127 86 – – Outflow (4) (210) (123) (87) – – Cross-currency swaps – cash flow hedges Inflow – 497 10 10 30 447 Outflow (6) (542) (17) (17) (51) (457) Foreign exchange forward contracts and swaps – fair value through profit or loss Inflow 263 263 258 5 – – Outflow (263) (263) (258) (5) – – Interest rate swaps – fair value through profit or loss Inflow – 13 13 – – – Outflow – (6) (6) – – – (2,280) (2,624) (1,167) (237) (241) (979)

* Undiscounted expected future payments depending on performance of acquisitions; the total maximum consideration is discussedin the Finance Review.

169 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 4: Capital Structure and Financing Costs continued

4.4 Keeping This section details the interest income generated on the Group’s cash and other Net financing it simple financial assets and the interest expense incurred on borrowings and other financial liabilities. costs In reporting ‘adjusted profit’, the Group adjusts net financing costs to exclude unrealised mark-to-market movements on interest rate and foreign exchange derivatives, gains/losses on bond buy-backs, net pension interest, interest and fair value movements in acquisition-related liabilities and other financing costs. Our rationale for adjustments made to financing costs is set out in the Finance Review.

Accounting policies Net financing costs comprise interest income on funds invested, gains/losses on the disposal of financial instruments, changes in the fair value of financial instruments, interest expense on borrowings and finance leases, unwinding of the discount on provisions, unwinding of the discount on liabilities to non-controlling interest, foreign exchange gains/losses, and imputed interest on pension assets and liabilities. Interest income and expense is recognised as it accrues in profit or loss, using the effective interest method. Net financing costs Net financing costs can be analysed as follows:

2017 2016 £m £m Financing income: Interest income 4 2 4 2 Financing costs: Interest expense on financial liabilities measured at amortised cost (30) (25) Net pension interest (see note 3.7) (9) (5) Change in fair value of instruments classified at fair value through profit or loss – (1) Foreign exchange loss (3) (8) Other finance expense (12) (14) (54) (53) Net financing costs (50) (51)

Interest on financial liabilities relates to the interest incurred on the Group’s borrowings in the year. Other finance expense includes the amortisation of facility commitment and upfront fees as well as movements in the estimated value of acquisition-related contingent liabilities, which contributed to most of the 2017 expense. This is where estimates of the future performance against stretch targets is reassessed, resulting in adjustments to the related put option liabilities.

170 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 4: Capital Structure and Financing Costs

Strategic Report

4.5 Keeping The financial instruments included on the ITV statement of financial position Fair value it simple are measured at either fair value or amortised cost. The measurement of this fair value can in some cases be subjective, and can depend on the inputs used in the hierarchy calculations. ITV generally uses external valuations using market inputs or market values (e.g. external share prices). The different valuation methods are called ‘hierarchies’ and are described below.

Level 1 Governance Fair values are measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 Fair values are measured using inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly. Interest rate swaps and options are accounted for at their fair value based upon termination prices. Forward foreign exchange contracts are accounted for at the difference between the contract exchange rate and the quoted forward exchange rate at the reporting date. Level 3 Fair values are measured using inputs for the asset or liability that are not based on observable market data.

The tables below set out the financial instruments included on the ITV statement of financial position at ‘fair value’. Financial Statements

Fair value Level 1 Level 2 Level 3 31 December 31 December 31 December 31 December 2017 2017 2017 2017 £m £m £m £m Assets measured at fair value Available-for-sale financial instruments Other pension assets – gilts (see note 3.7) 38 38 – – Available-for-sale investments (see note 3.5) 4 – – 4 Financial assets at fair value through profit or loss Foreign exchange forward contracts and swaps 2 – 2 – Financial assets at fair value through reserves Cash flow hedges 14 – 14 – 58 38 16 4

Fair value Level 1 Level 2 Level 3 31 December 31 December 31 December 31 December

2017 2017 2017 2017 information Additional £m £m £m £m Liabilities measured at fair value Financial liabilities at fair value through profit or loss Foreign exchange forward contracts and swaps (1) – (1) – Acquisition-related liabilities – payable to sellers under put options agreed on acquisition (73) – – (73) Financial liabilities at fair value through reserves Cash flow hedges (2) – (2) – (76) – (3) (73)

171 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 4: Capital Structure and Financing Costs continued

Fair value Level 1 Level 2 Level 3 31 December 31 December 31 December 31 December 2016 2016 2016 2016 £m £m £m £m Assets measured at fair value Available-for-sale financial instruments Other pension assets – gilts (see note 3.7) 39 39 – – Available-for-sale investments (see note 3.5) 12 – – 12 Financial assets at fair value through profit or loss Foreign exchange forward contracts and swaps 2 – 2 – Financial assets at fair value through reserves Cash flow hedges 7 – 7 – 60 39 9 12

Fair value Level 1 Level 2 Level 3 31 December 31 December 31 December 31 December 2016 2016 2016 2016 £m £m £m £m Liabilities measured at fair value Financial liabilities at fair value through profit or loss Contingent consideration (1) – – (1) Foreign exchange forward contracts and swaps (3) – (3) – Acquisition-related liabilities – payable to sellers under put options agreed on acquisition (48) – – (48) Financial liabilities at fair value through reserves Cash flow hedges (9) – (9) – (61) – (12) (49)

Refer to note 4.3 for how we value interest rate swaps and forward foreign currency contracts. The available-for-sale investments are valued at cost and assessed for impairment.

Acquisition-related liabilities are valued based on the forecast performance of each acquisition and where there has been a change in expectations, the Group adjusts the value of future commitments.

172 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 4: Capital Structure and Financing Costs

Strategic Report

4.6 Keeping This section explains material movements recorded in shareholders’ equity, presented Equity it simple in the Consolidated Statement in Changes in Equity, that are not explained elsewhere in the financial statements.

Accounting policies Governance Available-for-sale reserve Available-for-sale assets are stated at fair value, with any gain or loss recognised directly in the available-for-sale reserve in equity, unless the loss is a permanent impairment, when it is then recorded in the income statement. Dividends Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment. 4.6.1 Share capital and share premium The Group’s share capital at 31 December 2017 of £403 million (2016: £403 million) and share premium of £174 million (2016: £174 million) is the same as that of ITV plc. Details of this are given in the ITV plc Company financial statements section of this Annual Report. 4.6.2 Merger and other reserves Merger and other reserves at 31 December include the following reserves:

2017 2016 £m £m Merger reserves 98 98

Capital reserves 112 112 Financial Statements Capital redemption reserves 36 36 Revaluation reserves 2 2 Put option liabilities arising on acquisition of subsidiaries (49) (27) Total 199 221

4.6.3 Translation reserve The translation reserve comprises: • All foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations; and • The gains or losses on the portion of cash flow hedges that have been deemed effective (see note 4.3). 4.6.4 Available-for-sale reserve The available-for-sale reserve comprises all movements arising on the revaluation of gilts accounted for as available- for-sale financial instruments (see note 3.7). 4.6.5 Retained earnings

The retained earnings reserve comprises profit for the year attributable to owners of the Company of £409 million information Additional (2016: £448 million) and other items recognised directly through equity as presented in the consolidated statement of changes in equity. Other items include the credit for the Group’s share-based compensation schemes and the charge for the purchase of ITV shares via the ITV Employees’ Benefit Trust, which are described in note 4.7. The distributable reserves of ITV plc are disclosed in note viii to the ITV plc Company financial statements. See details on distributable reserves on page 186. The Directors of ITV plc propose a final dividend of 5.28p per share, which equates to a full year dividend of 7.8p per share. In 2017, £494 million of dividend payments were made (2016: £663 million). 4.6.6 Non-controlling interests Non-controlling interest (NCI) represents the share of non-wholly owned subsidiaries’ net assets that are not directly attributable to the shareholders of the ITV Group. The movement for the year comprises: • The share of profits attributable to NCI of £4 million (2016: £4 million); • The distributions made to NCI of £4 million (2016: £4 million); • The share of net assets attributable to NCI relating to subsidiaries acquired or disposed of in the year of £25 million (2016: nil); and • A £13 million write-down of the NCI held in Gurney Productions LLC, as a result of the treatment of the subsidiary as if it would have been wound down. See note 3.3 for further information.

173 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 4: Capital Structure and Financing Costs continued

4.7 Keeping The Group utilises share award schemes as part of its employee remuneration Share-based it simple packages, and therefore operates a number of share-based compensation schemes, namely the Deferred Share Award (DSA), Performance Share Plan (PSP), Long Term compensation Incentive Plan (LTIP) and Save As You Earn (SAYE) schemes. The share-based compensation is not pensionable. A transaction will be classed as share-based compensation where the Group receives services from employees and pays for these in shares or similar equity instruments. If the Group incurs a liability linked to the price or value of the Group’s shares, this will also fall under a share-based transaction. A description of each type of share-based payment arrangement that existed at any time during the period is set out in the Annual Remuneration Report.

Accounting policies For each of the Group’s share-based compensation schemes, the fair value of the equity instrument granted is measured at grant date and spread over the vesting period via a charge to the income statement with a corresponding increase in equity. The fair value of the share options and awards is measured using either market price at grant date or, for the SAYE scheme, a Black–Scholes model, taking into account the terms and conditions of the individual scheme. Vesting conditions are limited to service conditions and performance conditions. For performance-based schemes, the relevant Group performance measures are projected to the end of the performance period in order to determine the number of options expected to vest. The estimate is then used to determine the option fair value, discounted to present value. The Group revises its estimates of the number of options that are expected to vest, including an estimate of forfeitures at each reporting date. The impact of the revision to original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity. Exercises of share options granted to employees can be satisfied by market purchase or issue of new shares. No new shares may be issued to satisfy exercises under the terms of the DSA. During the year, all exercises were satisfied by using shares purchased in the market and held in the ITV Employees’ Benefit Trust. Share-based compensation charges totalled £12 million in 2017 (2016: £10 million).

174 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 4: Capital Structure and Financing Costs

Strategic Report

Share options outstanding The table below summarises the movements in the number of share options outstanding for the Group and their weighted average exercise price:

2017 2016 Weighted Weighted Number average Number average of options exercise price of options exercise price (’000) (pence) (’000) (pence) Outstanding at 1 January 36,533 67.86 40,167 55.63 Governance Granted during the year – nil priced 7,996 144.10 7,351 – Granted during the year – other 7,911 – 8,002 167.62 Forfeited during the year (5,614) 121.37 (255) 151.17 Exercised during the year (9,883) 44.87 (12,293) 28.81 Expired during the year (788) – (6,439) 109.25 Outstanding at 31 December 36,155 69.17 36,533 67.86 Exercisable at 31 December 2,808 – 83 –

The average share price during 2017 was 185.15 pence (2016: 209.91 pence). Of the options still outstanding, the range of exercise prices and weighted average remaining contractual life of these options can be analysed as follows:

2017 Weighted 2016 average Weighted Weighted remaining Weighted average average Number contractual average Number remaining exercise price of options life exercise price of options contractual life Range of exercise prices (pence) (pence) (’000) (years) (pence) (’000) (years) Financial Statements Nil – 20,417 1.65 – 21,531 1.89 20.00 – 49.99 – – – – – – 50.00 – 69.99 66.60 34 – 67.71 505 0.91 70.00 – 99.99 – – – – – – 100.00 – 109.99 – – – 102.59 185 1.92 110.00 – 119.99 – – – – – – 120.00 – 149.99 138.99 5,672 3.06 131.44 193 2.16 150.00 – 199.99 168.21 9,447 1.39 167.37 13,251 1.87 200.00 – 249.99 206.83 585 0.39 206.83 891 1.41

Assumptions DSA, LTIP and PSP options are valued directly by reference to the share price at date of grant. The options granted in the year for the SAYE scheme, an HMRC approved SAYE scheme, are valued using the Black–Scholes model, using the assumptions below:

Share price Expected Gross dividend Risk-free information Additional at grant Exercise price volatility Expected life yield rate Fair value Scheme name Date of grant (pence) (pence) % (years) % % (pence) 3 Year 29 March 2016 243.30 187.79 25.00 3.25 3.00 0.41 56.64 5 Year 29 March 2016 243.30 187.79 29.00 5.25 3.00 0.73 65.94 3 Year 16 Sept 2016 195.40 157.46 30.00 3.25 3.00 0.41 46.97 5 Year 16 Sept 2016 195.40 157.46 31.00 5.25 3.00 0.73 52.15 3 Year 29 March 2017 218.90 164.22 30.02 3.25 3.00 0.58 58.50 5 Year 29 March 2017 218.90 164.22 28.61 5.25 3.00 1.28 60.36 3 Year 16 Sept 2017 156.20 138.99 29.35 3.25 3.00 0.51 30.80 5 Year 16 Sept 2017 156.20 138.99 28.55 5.25 3.00 1.12 33.88

175 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 5: Other Notes

Employees’ Benefit Trust The Group has investments in its own shares as a result of shares purchased by the ITV Employees’ Benefit Trust (‘EBT’). Transactions with the Group-sponsored EBT are included in these financial statements and primarily consist of the EBT’s purchases of shares in ITV plc, which are accounted for as a reduction to retained earnings. The table below shows the number of ITV plc shares held in the EBT at 31 December 2017 and the purchases/(releases) from the EBT made in the year to satisfy awards under the Group’s share schemes:

Number of shares Nominal value Scheme Shares held at (released)/purchased £ 1 January 2017 14,410,124 1,438,557 LTIP releases (1,727,421) DSA releases (1,942,485) PSP releases (2,399,709) SAYE releases (2,415,665) Shares purchased 21,064,677 31 December 2017 26,989,521 2,698,952

The total number of shares held by the EBT at 31 December 2017 represents 0.67% (2016: 0.36%) of ITV’s issued share capital. The market value of own shares held at 31 December 2017 is £45 million (2016: £30 million). The shares will be held in the EBT until such time as they may be transferred to participants of the various Group share schemes. Rights to dividends have been waived by the EBT in respect of shares held that do not relate to restricted shares under the DSA. In accordance with the Trust Deed, the Trustees of the EBT have the power to exercise all voting rights in relation to any investment (including shares) held within that trust.

5.1 Keeping The related parties identified by the Directors include joint ventures, associated Related it simple undertakings, fixed asset investments and key management personnel. party To enable users of our financial statements to form a view about the effects transactions of related party relationships on the Group, we disclose the Group’s transactions with those related parties during the year and any associated year end trading balances.

Transactions with joint ventures and associated undertakings Transactions with joint ventures and associated undertakings during the year were:

2017 2016 £m £m Sales to joint ventures 15 8 Sales to associated undertakings 10 10 Purchases from joint ventures 28 26 Purchases from associated undertakings 70 70

The transactions with joint ventures primarily relate to sales and purchases of digital multiplex services with Digital 3&4 Limited and distribution revenue from BritBox LLC. Sales to associated undertakings include airtime sales to DTV Services Limited. Purchases from associated undertakings primarily relate to the purchase of news services from ITN Limited. All transactions with associated undertakings and joint ventures arise in the normal course of business on an arm’s length basis. None of the balances are secured. The amounts owed by and to these related parties at the year end were:

2017 2016 £m £m Amounts owed by joint ventures 6 – Amounts owed by associated undertakings 6 57 Amounts owed to joint ventures – – Amounts owed to associated undertakings 4 –

176 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Section 5: Other Notes

Strategic Report

Amounts owed by joint ventures primarily relate to trading with BritBox LLC. Balances owed by associated under takings largely relate to loan notes and trading balances with Monumental TV Limited. Balances owed to associated undertakings primarily relate to trading with ITN Limited. Amounts paid to the Group’s retirement benefit plans are set out in note 3.7. Transactions with key management personnel Key management consists of ITV plc Executive and Non-executive Directors and the ITV Management Board. Key management personnel compensation is as follows: Governance 2017 2016 £m £m Short-term employee benefits 10 8 Share-based compensation 1 2 11 10

5.2 Keeping A contingent asset or liability is a liability that is not sufficiently certain to qualify Contingent it simple for recognition as an asset or provision where uncertainty may exist regarding the outcome of future events. assets and liabilities

Contingent assets In 2017 Talpa Media took back the licence for The Voice of China due a breach of the agreement by the customer,

Talent, for not fulfilling their payment obligations. The Group is pursuing Talent vigorously for the £30 million still Financial Statements due under the agreement. Further, the Group has credit insurance in place and a claim has been submitted. Whilst the Directors are confident of recovering the amount due, accounting standards set very specific requirements for the recognition of contingent assets, which is how the recovery of the amount due has been accounted for. As discussions with the insurers and the claim against Talent are still in progress, at this early stage of pursuing recovery the Group is not able to demonstrate sufficient certainty to be able to recognise a cash receivable at the year end. See note 2.2 for further details.

Contingent liabilities The Group has initiated legal proceedings against the minority owners of Gurney Productions LLC for alleged breaches of contracts and their fiduciary duties, as well as self-dealing and fraudulent concealment. The minority owners dispute the allegations and they have counter-claimed for damages of at least $150 million. The action is ongoing and, having taken legal advice, the Directors believe this counter-claim is completely without merit. There are contingent liabilities in respect of certain litigation and guarantees, broadcasting issues, and in respect of warranties given in connection with certain disposals of businesses. None of these items are expected to have a material effect on the Group’s results or financial position.

information Additional

177 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the Financial Statements Section 5: Other Notes continued

5.3 Keeping Certain subsidiaries of the Group can take an exemption from having an audit. Strict Subsidiaries it simple criteria must be met for this exemption to be taken, and it must be agreed by the Directors of that subsidiary entity. exempt from audit

Listed below are subsidiaries controlled and consolidated by the Group, where the Directors have taken the exemption from having an audit of its financial statements. This exemption is taken in accordance with Companies Act s479A.

Company number Company name Company number Company name 10058419 Back Productions Limited 10171346 BGSS Limited 10404493 Big Talk Bliss Limited 10496857 Big Talk Cold Feet Limited 10528766 Big Talk Diana Limited 11081338 Big Talk Guilty Limited 10528952 Big Talk Living the Dream Limited 11109753 Big Talk NEWCO 1 Limited 11109865 Big Talk NEWCO 2 Limited 11109572 Big Talk NEWCO 3 Limited 11109596 Big Talk NEWCO 4 Limited 01891539 Broad Street Films Limited 02285229 Campania Limited 05078683 Carbon Media Limited 04159249 Carlton Content Holdings Limited 00301188 Carlton Film Distributors Limited 01692483 Carlton Finance Limited 03984490 Carlton Food Network Limited 03053908 Carlton Programmes Development Limited 03210452 Carlton Screen Advertising (Holdings) Limited 03307790 Carltonco 103 02625225 Carltonco Forty Investments 03210363 Carltonco Ninety-Six 02280048 Castlefield Properties Limited 04257248 Channel Television Holdings Limited 02852812 Cosgrove Hall Films Limited 03209058 DTV Limited 00913659 Granada Film Limited 00290076 Granada Group Limited 03962410 Granada Limited 03106798 Granada Media Limited 05344772 Granada Screen (2005) Limited 00733063 Granada Television Overseas Limited 06914987 ITV (HC) Limited 10384774 ITV Bancroft Limited 04206924 ITV Beowulf Limited 01127149 ITV Breathless Limited 04209918 ITV Cilla Limited 04206900 ITV Cradle Limited 10602705 ITV CS Limited 10058008 ITV Dark Heart Limited 10494684 ITV Enterprises Limited 10671435 ITV HG Limited 04159210 ITV Holdings Limited 04207680 ITV Home Fires Limited 04206925 ITV Investments Limited 04206912 ITV J&H Limited 04206871 ITV Jericho Limited 04206927 ITV JR Limited 11107681 ITV Leila Limited 08723446 ITV Lewis Limited 10031419 ITV Little Boy Blue Limited 10058180 ITV Loch Ness Limited 08534385 ITV Lucan Limited 04206935 ITV Moorside Limited 04033106 ITV Mr Selfridge Limited 03799828 ITV Play Limited 01565625 ITV Properties (Developments) Limited 08554937 ITV Shetland Limited 04206897 ITV Spirit Limited 11107990 ITV Studios NEWCO 11 11108813 ITV Studios NEWCO 12 10031818 ITV T&B Limited 09499040 ITV Tennison Limited 08516153 ITV Text Santa Limited 11107934 ITV The Bay Limited 08586211 ITV Thunderbirds Limited 09498177 ITV Top Class Limited 10384819 ITV Trauma Limited 09499012 ITV Tut Limited 11107431 ITV Vera Limited 05518785 Juice Music UK Limited 00920028 Link Electronics Limited 11108285 Mammoth Screen (ABC) Limited 10528851 Mammoth Screen (City) Limited 10528827 Mammoth Screen (END5) Limited 11109917 Mammoth Screen (END6) Limited 11062257 Mammoth Screen (NC) Limited 11108327 Mammoth Screen (DESIRE) Limited 10491117 Mammoth Screen (NOK) Limited 10062923 Mammoth Screen (NW) Limited 10646873 Mammoth Screen (OBI) Limited 09660486 Mammoth Screen (POL2) Limited 10031005 Mammoth Screen (POL3) Limited 10528763 Mammoth Screen (POL4) Limited 11108289 Mammoth Screen (POL5) Limited 09646520 Mammoth Screen (QV) Limited 10528702 Mammoth Screen (VF) Limited 11108322 Mammoth Screen (VIC3) Limited 10043079 Mammoth Screen (WFTP) Limited 11108320 Mammoth Screen (WOF) Limited 10973979 Mammoth Screen (WOTW) Limited 04201477 Morning TV Limited 04206913 SOM (ITV) Limited 06469484 VOD Member (ITV A) Limited 06469482 VOD Member (ITV B) Limited 10796122 WP (BodyGuard) Limited 11109287 WP (NEWCO 1) Limited 11109744 WP (NEWCO 2) Limited 11109437 WP (NEWCO 3) Limited 11109929 WP (NEWCO 4) Limited

178 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 ITV plc Company Financial Statements

ITV plc Company Financial Statements Strategic Report

Company Balance Sheet 2017 2017 2016 2016 As at 31 December Note £m £m £m £m Non-current assets Investments in subsidiary undertakings iii 2,191 1,861 Derivative financial instruments vi 11 4 Deferred tax asset 1 2

2,203 1,867 Governance Current assets Amounts owed by subsidiary undertakings iv 4,230 4,066 Derivative financial instruments vi 7 10 Other receivables 5 19 Cash and cash equivalents 17 438 4,259 4,533 Current liabilities Borrowings v (60) (161) Amounts owed to subsidiary undertakings iv (3,237) (2,856) Accruals and deferred income (8) (22) Current tax liabilities (2) – Derivative financial instruments vi (7) (10) (3,314) (3,049) Net current assets 945 1,484 Total assets less current liabilities 3,148 3,351

Financial Statements Non-current liabilities Borrowings v (973) (1,035) Derivative financial instruments vi (1) (9) (974) (1,044) Net assets 2,174 2,307

Capital and reserves Share capital vii 403 403 Share premium viii 174 174 Other reserves viii 26 28 Retained earnings viii 1,571 1,702 Total equity 2,174 2,307

The accounts were approved by the Board of Directors on 28 February 2018 and were signed on its behalf by:

Additional information Additional Ian Griffiths Director

179 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

ITV plc Company Financial Statements continued

Company Statement of Changes in Equity Share Share Other Retained capital premium reserves earnings Total Note £m £m £m £m £m Balance at 1 January 2017 403 174 28 1,702 2,307 Total comprehensive income for the year Profit – – – 351 351 Net loss on cash flow hedges – – (2) – (2) Total comprehensive income for the year – – (2) 351 349 Transactions with owners recorded directly in equity Contributions by and distributions to owners Equity dividends – – – (494) (494) Movements due to share-based compensation – – – 12 12 Total transactions with owners – – – (482) (482) Balance at 31 December 2017 vii/viii 403 174 26 1,571 2,174

Share Share Other Retained Capital Premium Reserves Earnings Total Note £m £m £m £m £m Balance at 1 January 2016 403 174 36 880 1,493 Total comprehensive income for the year Profit – – – 1,475 1,475 Net loss on cash flow hedges – – (8) – (8) Total comprehensive income for the year – – (8) 1,475 1,467 Transactions with owners recorded directly in equity Contributions by and distributions to owners Equity dividends – – – (663) (663) Movements due to share-based compensation – – – 10 10 Total transactions with owners – – – (653) (653) Balance at 31 December 2016 vii/viii 403 174 28 1,702 2,307

180 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Notes to the ITV plc Company Financial Statements

Notes to the ITV plc Company Financial Statements Strategic Report

Note i In this This section sets out the notes to the ITV plc Company only financial statements. Accounting section Those statements form the basis of the dividend decisions made by the Directors, as explained in detail in note viii below. These financial statements policies were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’. Governance

Basis of preparation The Company is a qualifying entity as it is a member of the ITV plc Group where ITV plc, the ultimate parent, prepares publicly available consolidated financial statements. Exemptions applied The Company is taking advantage of the following disclosure exemptions under FRS 101: • Presentation of a Statement of Cash Flows; • Disclosure of key management personnel compensation; • Disclosure of related party transactions between wholly-owned subsidiaries and parents within a group; • Disclosures required under IFRS 2 ‘Share Based Payments’ in respect of group settled share based payments; • Disclosures required by IFRS 7 ‘Financial Instrument: Disclosure’; • Certain disclosures required under IFRS 13 ‘Fair Value Measurement’; and • Disclosure of information in relation to new standards not yet applied. As permitted by section 408 (3) of the Companies Act 2006, a separate income statement dealing with the results of the parent company has not been presented. Financial Statements Subsidiaries Subsidiaries are entities that are directly or indirectly controlled by the Company. Control exists where the Company has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The investment in the Company’s subsidiaries is recorded at cost. Foreign currency transactions Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Foreign currency monetary assets and liabilities at the balance sheet date are translated into sterling at the rate of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the profit and loss account. Non-monetary assets and liabilities measured at historical cost are translated into sterling at the rate of exchange on the date of the transaction. Borrowings Borrowings are recognised initially at fair value including directly attributable transaction costs, with subsequent measurement at amortised cost using the effective interest rate method. The difference between initial fair value and the redemption value is recorded in the profit and loss account over the period of the liability on an effective interest basis. Additional information Additional Derivatives and other financial instruments The Company uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest and other foreign exchange rates. The Company does not hold or issue derivative instruments for speculative purposes. Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with the movement recorded in the profit and loss account within net financing costs, except where derivatives qualify for cash flow hedge accounting. In this case, the effective portion of cash flow hedge is recognised in retained profits within equity. The cumulative gain or loss is later reclassified to the profit and loss account in the same period as the relevant hedged transaction is realised. Derivatives with positive fair values are recorded as assets and negative fair values as liabilities. The fair value of foreign currency forward contracts is determined by using the difference between the contract exchange rate and the quoted forward exchange rate at the balance sheet date.

181 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the ITV plc Company Financial Statements continued

The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of swap counterparties. Third-party valuations are used to fair value the Company’s derivatives. The valuation techniques use inputs such as interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations between inputs. For financial assets and liabilities classified at fair value through profit or loss, the fair value change and interest income/expense are not separated. Current tax Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment in respect of previous years. The Company recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are likely to become due, which require judgement. Amounts are accrued based on management’s interpretation of specific tax law and the likelihood of settlement. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current tax and deferred tax provisions in the period in which such determination is made. Deferred tax The tax charge for the period is recognised in the income statement or directly in equity according to the accounting treatment of the related transaction. Deferred tax arises due to certain temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and those for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary difference. Recognition of deferred tax assets therefore involves judgement regarding timing and level of future taxable income. Share-based compensation The Company utilises share award schemes as part of its employee remuneration packages, and therefore operates a number of share-based compensation schemes, namely the Deferred Share Award (DSA), Performance Share Plan (PSP), Long Term Incentive Plan (LTIP) and Save As You Earn (SAYE) schemes. A transaction will be classed as share-based compensation where the Company receives services from employees and pays for these in shares or similar equity instruments. If the Company incurs a liability based on the price or value of the shares, this will also fall under a share-based transaction. The Company recognises the retained earnings impact of the share-based compensation for the Group as awards are settled in ITV plc shares. The cost of providing those awards is recharged to subsidiaries that receive the service from employees. The fair value of the equity instrument granted is measured at grant date and spread over the vesting period via a charge to the income statement with a corresponding increase in equity. The fair value of the share options and awards is measured using either market price at grant date or, for the SAYE scheme, a Black–Scholes model, taking into account the terms and conditions of the individual scheme. Vesting conditions are limited to service conditions and performance conditions. For performance-based schemes, the relevant performance measures are projected to the end of the performance period in order to determine the number of options expected to vest. The estimate is then used to determine the option fair value, discounted to present value. The Company revises its estimates of the number of options that are expected to vest, including an estimate of forfeitures at each reporting date. The impact of the revision to original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity. Exercises of share options granted to employees can be satisfied by market purchase or issue of new shares. No new shares may be issued to satisfy exercises under the terms of the DSA. During the year, all exercises were satisfied by using shares purchased in the market and held in the ITV Employees’ Benefit Trust. The Trust is accounted for as a separate entity and therefore is only accounted for in the consolidated financial statements. Dividends Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.

182 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Notes to the ITV plc Company Financial Statements

Strategic Report

Two (2016: two) Directors of ITV plc were employees of the Company during the year, one of whom remains employed Note ii at the year end. The costs relating to these Directors are disclosed in the Remuneration Report. Employees Share-based payments and share- The weighted average share price of share options exercised during the year was 44.87p (2016: 55.33p). The options based outstanding at the year end have an exercise price in the range of nil to 206.83p (2016: nil to 206.83p) and a weighted payments average contractual life of two years (2016: one year) for all the schemes in place for the Group.

Governance The principal subsidiary undertakings are listed on page 188. The carrying value at 31 December 2017 was £2,191 million Note iii (2016: £1,861 million). Investments In 2017, the Company increased investment in subsidiaries by £330 million mainly due to subscribing to preference in subsidiary shares in a newly formed subsidiary in Ireland, North America Studio Investments Designated Activity Company. undertakings

The Company operates an intra-group cash pool policy with certain 100% owned UK subsidiaries. The pool applies Note iv to bank accounts where there is an unconditional right of set off and involves the daily closing cash position for Amounts participating subsidiaries whether positive or negative, being cleared to £nil via daily bank transfers to/from ITV plc. These daily transactions create a corresponding intercompany creditor or debtor, which can result in significant owed movements in amounts owed to and from subsidiary undertakings in the Company balance sheet. (to)/from subsidiary undertakings Financial Statements

Note v Keeping The Directors manage the Group’s capital structure as disclosed in section 4 Borrowings it simple to the consolidated financial statements. Borrowings, cash and derivative financial instruments are mainly held by ITV plc and disclosed in these Company financial statements.

Loans and facilities due within one year At various periods during the year, the Group drew down on the Revolving Credit Facility (‘RCF’) to meet short-term funding requirements. At 31 December 2017, the Group had drawings of £60 million under the RCF (2016: £nil). The maximum draw down of the RCF during the year was £390 million (2016: £500 million). The Group also had an unsecured £161 million Eurobond that matured in January 2017 and had a coupon of 6.125%. Additional information Additional Loans and loan notes due after one year The Group had a £100 million bilateral loan facility, which was repaid in full in June 2017. The Group has issued the following Eurobonds: • A seven-year €600 million Eurobond at a fixed coupon of 2.125%, which matures in September 2022; and • A seven-year €500 million Eurobond at a fixed coupon of 2.0%, which will mature in December 2023. The bond issued in December 2016 has been swapped back to sterling using a cross currency interest swap. The resulting fixed rate payable is c. 3.5%.

183 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the ITV plc Company Financial Statements continued

What is the value of our derivative financial instruments?

Note vi Assets Liabilities 2017 2017 Managing £m £m market risks: Current derivative Foreign exchange forward contracts and swaps – cash flow hedges 5 (5) financial Foreign exchange forward contracts and swaps – fair value through profit or loss 2 (2) instruments Non-current Cross-currency interest swaps – cash flow hedges 10 – Foreign exchange forward contracts and swaps – cash flow hedges 1 (1) 18 (8)

Assets Liabilities 2016 2016 £m £m Current Foreign exchange forward contracts and swaps – cash flow hedges 7 (7) Foreign exchange forward contracts and swaps – fair value through profit or loss 3 (3) Non-current Cross-currency interest swaps – cash flow hedges – (6) Foreign exchange forward contracts and swaps – cash flow hedges 4 (3) 14 (19)

The Company mainly employs three types of derivative financial instruments when managing its currency and interest rate risk: • Foreign exchange swap contracts are derivative instruments used to hedge income statement translation risk arising from short-term intercompany loans denominated in a foreign currency; • Forward foreign exchange contracts are derivative instruments used to hedge transaction risk so they enable the sale or purchase of foreign currency at a known fixed rate on an agreed future date; and • Cross-currency interest rate swaps are derivative instruments used to exchange the principal and interest coupons in a debt instrument from one currency to another. Cash flow hedges The Group applies hedge accounting for certain foreign currency firm commitments and highly probably cash flows where the underlying cash flows are payable within the next two to seven years. In order to fix the sterling cash inflows and outflows associated with the commitments and interest payments – which are mainly denominated in AUD or euros – the Group has taken out forward foreign exchange contracts and cross-currency interest swaps for the same foreign currency amount and maturity date as the expected foreign currency outflow. The amount recognised in other comprehensive income during the period all relates to the effective portion of the revaluation loss associated with these contracts. There was no (2016: less than £1 million) ineffectiveness taken to the income statement and £17 million cumulative gain (2016: £2 million) recycled to the income statement in the year. Cross-currency interest rate swaps On issuing the 2023 Eurobond, the Group entered into a portfolio of cross-currency interest rate swaps, which swapped the euro principal and fixed rate coupons into sterling. As a result, the Group makes sterling interest payments at a fixed rate.

184 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Notes to the ITV plc Company Financial Statements

Strategic Report

Undiscounted financial liabilities The Company is required to disclose the expected timings of cash outflows for each of its derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows (including interest), so will not always reconcile with the amounts disclosed on the statement of financial position.

Total Carrying contractual Less than Between Between value cash flows 1 year 1 and 2 years 2 and 5 years Over 5 years At 31 December 2017 £m £m £m £m £m £m

Non-current and current Governance Foreign exchange forward contracts and swaps – cash flow hedges Inflow 6 206 148 58 – – Outflow (6) (204) (146) (58) – – Cross-currency swaps – cash flow hedges Inflow 10 557 11 11 32 503 Outflow – (513) (15) (15) (44) (439) Foreign exchange forward contracts and swaps – fair value through profit or loss Inflow 2 119 107 7 5 – Outflow (2) (118) (106) (7) (5) – 10 47 (1) (4) (12) 64

Total Financial Statements Carrying contractual Less than Between Between value cash flows 1 year 1 and 2 years 2 and 5 years Over 5 years At 31 December 2016 £m £m £m £m £m £m Non-current and current Foreign exchange forward contracts and swaps – cash flow hedges Inflow 11 393 237 156 – – Outflow (10) (392) (237) (155) – – Cross-currency swaps – cash flow hedges Inflow – 497 10 10 30 447 Outflow (6) (542) (17) (17) (51) (457) Foreign exchange forward contracts and swaps – fair value through profit or loss Inflow 412 412 402 10 – –

Outflow (412) (412) (402) (10) – – information Additional Interest rate swaps – fair value through profit or loss Inflow – 13 13 – – – Outflow – (6) (6) – – – (5) (37) – (6) (21) (10)

185 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the ITV plc Company Financial Statements continued

Allotted, issued Authorised and fully paid Note vii 2017 & 2016 2017 & 2016 Share capital £m £m Authorised ordinary shares of 10 pence each 8,000,000,000 800 Allotted, issued and fully paid ordinary shares of 10 pence each 4,025,409,194 403 Total 800 403

The Company’s ordinary shares give shareholders equal rights to vote, receive dividends and to the repayment of capital.

Note viii Keeping ITV plc is a non-trading investment holding company and derives its profits from Equity and it simple dividends paid by subsidiary companies. dividends The Directors consider the Group’s capital structure and dividend policy at least twice a year ahead of announcing results and do so in the context of its ability to continue as a going concern, to execute the strategy and to invest in opportunities to grow the business and enhance shareholder value. The dividend policy is influenced by a number of the principal risks as identified on pages 50 to 57 that could have a negative impact on the performance of the Group. In determining the level of dividend in any year, the Directors follow the dividend policy and also consider a number of other factors that influence the proposed dividend, including: • The level of retained distributable reserves in ITV plc the Company; • Availability of cash resources (as disclosed in note 4.1 to the consolidated financial statements); and • Future cash commitments and investment plans, in line with Group’s strategic plan.

Equity The retained earnings reserve includes profit after tax for the year of £351 million (2016: £1,475 million), which includes dividends of £426 million from subsidiaries in 2017 (2016: £1,500 million). Other reserves of £26 million (2016: £28 million) relate to share buy-backs in prior periods and foreign currency translation net of cash flow hedging. Dividends The Directors of the Company propose a final dividend of 5.28p per share, which equates to a full year dividend of 7.8p per share. Distributable reserves The distributable reserves of ITV plc approximate to the balance of the retained earnings reserve of £1,571 million (2016: £1,702 million) as at 31 December 2017.

Note ix Keeping A contingent liability is a liability that is not sufficiently certain to qualify Contingent it simple for recognition as a provision where uncertainty may exist regarding the liabilities outcome of future events.

Under a Group registration, the Company is jointly and severally liable for VAT at 31 December 2017 of £45 million (31 December 2016: £47 million). The Company has guaranteed certain finance and operating lease obligations of subsidiary undertakings.

186 ITVITV plcplc Annual Annual Report Report and and Accounts Accounts 2017 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Notes to the ITV plc Company Financial Statements

Strategic Report

There are contingent liabilities in respect of certain litigation and guarantees, broadcasting issues, and in respect Note x of warranties given in connection with certain disposals of businesses. None of these items are expected to have Capital and a material effect on the Company’s results or financial position. other Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies commitments within its Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

There are no capital commitments at 31 December 2017 (2016: none). Governance

Note xi Keeping The related parties identified by the Directors include solely key management, Related party it simple as ITV plc is a holding company with no commercial activity. transactions To enable the users of the financial statements to form a view about the effects of related party relationships on the Company, we disclose the Company’s transactions with those during the year.

Transactions with key management personnel Key management consists of ITV plc Executive Directors. Key management personnel compensation, on an accounting basis, is as follows:

2017 2016 Financial Statements £m £m Short-term employee benefits 4 3 Share-based compensation – 2 4 5

Total emoluments and gains on share options received by key management personnel in the year were:

2017 2016 £m £m Emoluments 2 3 Gains on exercise of share options 1 2 Gains on release of restricted share awards 2 2 5 7

Additional information Additional

187 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the ITV plc Company Financial Statements continued

Subsidiary undertakings and investments Principal subsidiary undertakings The principal subsidiary undertakings of the Company at 28 February 2018, all of which are wholly owned (directly or indirectly) and incorporated and registered where stated.

Company Name Country Principal Business Activity % Holding Carlton Communications Limited (1)(a)(d) UK Holding company 100 ITV Broadcasting Limited (1)(a) UK Broadcast of television programmes 100 Development of platforms, broadband, transactional ITV Consumer Limited (1)(a) UK and mobile services 100 ITV Digital Channels Limited (1)(a) UK Operation of digital television channels 100 ITV Global Entertainment Limited (1)(a) UK Rights ownership and distribution of television programmes and flms 100 ITV Network Limited (1)(i) UK Scheduling and commissioning of television programmes 100 ITV Rights Limited (1)(a) UK Rights ownership 100 ITV Services Limited (1)(a)(e) UK Provision of services for other companies within the Group 100 ITV Studios Limited (1)(a) UK Production of television programmes 100 ITV2 Limited (1)(a) UK Operation of digital television channels 100 SDN Limited (1)(a) UK Operation of Freeview Multiplex A 100 Talpa Media B.V. (52)(a) Netherlands Production of television programmes 100 ITV America Inc. (63)(j) USA Production of television programmes 100 ITV Global Entertainment, Inc. (63)(j) USA Rights ownership and distribution of television programmes and flms 100 Southbank Studios Inc. (63)(j) USA Production of television programmes 100

Subsidiary undertakings

Company Name Country % Holding Company Name Country % Holding 12 Yard (North) Productions Limited (1)(a) UK 100 Carlton Programmes Development Limited (1)(a) UK 100 12 Yard Limited (1)(a) UK 100 Carlton Screen Advertising (Holdings) Limited (1)(a) UK 100 12 Yard Productions (Investments) Limited (1)(a) UK 100 Carltonco 103 (1)(a) UK 100 12 Yard Productions Limited (1)(a) UK 100 Carltonco 99 Limited (1)(a) UK 100 A.C.E. (1988) Limited (1)(a) UK 100 Carltonco Eighty-One Limited (1)(a)(b) UK 100 Back Productions Limited (7)(a) UK 100 Carltonco Fifty Limited (1)(a)(k) UK 100 BGSS Limited (1)(a) UK 100 Carltonco Forty Investments (1)(a) UK 100 Big Talk Bliss Limited (1)(a) UK 100 Carltonco Forty-Five Limited (1)(a) UK 100 Big Talk Cold Feet Limited (1)(a) UK 100 Carltonco Ninety-Six (1)(a)(f) UK 100 Big Talk Diana Limited (1)(a) UK 100 Carltonco Seventeen Limited (1)(a) UK 100 Big Talk Investments Limited (1)(a) UK 100 Castlefeld Properties Limited (1)(a) UK 100 Big Talk JL Limited (1)(a) UK 100 Cat’s on the Roof Media Limited (1)(a) UK 100 Big Talk Living the Dream Limited (1)(a) UK 100 Central Television Limited (1)(a) UK 100 Big Talk NEWCO 1 Limited (1)(a) UK 100 Channel Television Holdings Limited (1)(a) UK 100 Big Talk NEWCO 2 Limited (1)(a) UK 100 Cosgrove Hall Films Limited (1)(a) UK 100 Big Talk NEWCO 3 Limited (1)(a) UK 100 Denipurna Limited (1)(a) UK 100 Big Talk NEWCO 4 Limited (1)(a) UK 100 DTV Limited (1)(a) UK 100 Big Talk Pictures Limited (1)(a) UK 100 Electronic Rentals Group (1)(a) UK 100 Big Talk Productions Limited (1)(a) UK 100 EQ Pictures Limited (1)(a) UK 100 Broad Street Films Limited (1)(a) UK 100 GIL Limited (1)(a) UK 100 Campania Limited (1)(a)(f) UK 100 Granada AV Solutions Limited (1)(a) UK 100 Carbon Media Limited (1)(a) UK 100 Granada Film (1)(a) UK 100 Carlton Active Limited (1)(a) UK 100 Granada Film Productions Limited (1)(a) UK 100 Carlton Cinema Limited (1)(a) UK 100 Granada Group Limited (1)(a) UK 100 Carlton Content Holdings Limited (1)(a) UK 100 Granada Limited (1)(a) UK 100 Carlton Entertainment (1)(a) UK 100 Granada Media Limited (1)(a)(l) UK 100 Carlton Film Distributors Limited (1)(a) UK 100 Granada Productions Limited (1)(a) UK 100 Carlton Films Limited (1)(a) UK 100 Granada Properties (1)(a) UK 100 Carlton Finance Limited (1)(a) UK 100 Granada Screen (2005) Limited (1)(a) UK 100 Carlton Food Network Limited (1)(a) UK 100 Granada Television International (1)(a) UK 100 Carlton Productions Limited (1)(a) UK 100 Granada Television Limited (1)(a) UK 100

188 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 List of subsidiaries Strategic Report

Company Name Country % Holding Company Name Country % Holding Granada Television Overseas Limited (1)(a) UK 100 ITV Tennison Limited (1)(a) UK 100 Granada Television Productions Limited (1)(a) UK 100 ITV Text Santa Limited (1)(a) UK 100 Granada UK Rental and Retail Limited (1)(a)(e) UK 100 ITV The Bay Limited (1)(a) UK 100 Interactive Telephony Limited (1)(a) UK 100 ITV Thunderbirds Limited (1)(a) UK 100 International Television Enterprises London Limited (1)(a)(d) UK 100 ITV Top Class Limited (1)(a) UK 100 ITC Distribution (1)(a) UK 100 ITV Trauma Limited (1)(a) UK 100 Governance ITC Entertainment Group Limited (1)(a) UK 100 ITV Tut Limited (1)(a) UK 100 ITC Entertainment Holdings Limited (1)(a) UK 100 ITV Ventures Limited (1)(a) UK 100 ITV (HC) Limited* (1)(a) UK 100 ITV Wales & West Group Limited (1)(a) UK 100 ITV (Scotland) Limited (30)(a) UK 100 ITV Wales & West Limited (1)(a) UK 100 ITV Bancroft Limited (1)(a) UK 100 ITV3 Limited (1)(a) UK 100 ITV Beowulf Limited (1)(a) UK 100 ITV4 Limited (1)(a) UK 100 ITV Border Limited (1)(a) UK 100 ITV Vera Limited (1)(a) UK 100 ITV Breakfast Broadcasting Limited (1)(a) UK 100 Juice Music UK Limited (1)(a) UK 100 ITV Breakfast Limited (1)(a) UK 100 London News Network (1)(a) UK 100 ITV Breathless Limited (1)(a) UK 100 London Weekend Television Limited (1)(a) UK 100 ITV Central Limited (1)(a) UK 100 LWT (Holdings) Limited (1)(a)(c) UK 100 ITV Channels Limited (1)(a) UK 100 LWT Productions Limited (1)(a) UK 100 ITV Cilla Limited (1)(a) UK 100 Mammoth Screen (ABC) Limited (1)(a) UK 100 ITV Cradle Limited (1)(a) UK 100 Mammoth Screen (AR) Limited (1)(a) UK 100 ITV CS Limited (1)(a) UK 100 Mammoth Screen (ATTWN) Limited (1)(a) UK 100 ITV Dark Heart Limited (1)(a) UK 100 Mammoth Screen (Bouquet) Limited (1)(a) UK 100

ITV DC Trustee Limited (1)(a) UK 100 Mammoth Screen (BW) Limited (26)(a) UK 100 Financial Statements ITV Digital Holdings Limited (1)(a) UK 100 Mammoth Screen (City) Limited (1)(a) UK 100 ITV Enterprises Limited (1)(a) UK 100 Mammoth Screen (End) Ltd (1)(a) UK 100 ITV Global Content Limited (1)(a) UK 100 Mammoth Screen (End2) Limited (1)(a) UK 100 ITV HG Limited (1)(a) UK 100 Mammoth Screen (End5) Limited (1)(a) UK 100 ITV Holdings Limited (1)(a) UK 100 Mammoth Screen (End6) Limited (1)(a) UK 100 ITV Home Fires Limited (1)(a) UK 100 Mammoth Screen (Falcon) Limited (1)(a) UK 100 ITV International Channels (Asia) Limited (1)(a) UK 100 Mammoth Screen (Fearless) Limited (1)(a) UK 100 ITV Investments Limited* (1)(a) UK 100 Mammoth Screen Ltd (1)(a) UK 100 ITV J&H Limited (1)(a) UK 100 Mammoth Screen (Monroe) Limited (1)(a) UK 100 ITV Jericho Limited (1)(a) UK 100 Mammoth Screen (NC) Limited (1)(a) UK 100 ITV JR Limited (1)(a) UK 100 Mammoth Screen (NE) Limited (1)(a) UK 100 ITV Leila Limited (1)(a) UK 100 Mammoth Screen (NEWCO 6) Limited (1)(a) UK 100 ITV Lewis Limited (1)(a) UK 1 00 Mammoth Screen (NI) Limited (35)(a) UK 100 ITV Little Boy Blue Limited (1)(a) UK 100 Mammoth Screen (NOK) Limited (1)(a) UK 100 ITV Loch Ness Limited (1)(a) UK 100 Mammoth Screen (NW) Limited (1)(a) UK 100 ITV LTVC (Scotland) Limited (30)(a) UK 100 Mammoth Screen (OBI) Limited (1)(a) UK 100 Additional information Additional ITV Lucan Limited (1)(a) UK 100 Mammoth Screen (PE) Limited (1)(a) UK 100 ITV Meridian Limited (1)(a) UK 100 Mammoth Screen (Pol2) Limited (1)(a) UK 100 ITV Moorside Limited (1)(a) UK 100 Mammoth Screen (Pol3) Limited (1)(a) UK 100 ITV Mr Selfridge Limited (1)(a) UK 100 Mammoth Screen (Pol4) Limited (1)(a) UK 100 ITV News Channel Limited (1)(a)(k) UK 100 Mammoth Screen (Pol5) Limited (1)(a) UK 100 ITV Pension Scheme Limited (1)(a)(b) UK 100 Mammoth Screen (Poldark) Limited (1)(a) UK 100 ITV Play Limited (1)(a) UK 100 Mammoth Screen (QV) Limited (1)(a) UK 100 ITV Productions Limited (1)(a) UK 100 Mammoth Screen (RM) Limited (1)(a) UK 100 ITV Properties (Developments) Limited (1)(a) UK 100 Mammoth Screen (VF) Ltd (1)(a) UK 100 ITV Shetland Limited (1)(a) UK 100 Mammoth Screen (Vic3) Limited (1)(a) UK 100 ITV Spirit Limited (1)(a) UK 100 Mammoth Screen (WFTP) Limited (1)(a) UK 100 ITV Sport Channel Limited (1)(a) UK 100 Mammoth Screen (WH) Limited (1)(a) UK 100 ITV Studios (Israel) Limited (1)(a) UK 100 Mammoth Screen (WOF) Limited (1)(a) UK 100 ITV Studios Newco 11 Limited (1)(a) UK 100 Mammoth Screen (WOTW) Limited (1)(a) UK 100 ITV Studios Newco 12 Limited (1)(a) UK 100 Millbank Studios (1)(a) UK 100 ITV Supplementary Pension Scheme Limited (1)(a) UK 100 Morning TV Limited (1)(a) UK 100 ITV T&B Limited (1)(a) UK 100 Moving Picture Company Films Limited (1)(a) UK 100

189 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the ITV plc Company Financial Statements continued

Company Name Country % Holding Company Name Country % Holding New Providence Productions Limited (1)(a) UK 100 ITV Global Entertainment (Hong Kong) Limited (49)(a) Hong Kong 100 Pickwick Packaging Limited (1)(a) UK 100 Talpa China Limited (48)(a) Hong Kong 100 Sightseers Film Limited (1)(a) UK 100 UTV Pension Scheme Limited (100) (a) Ireland 100 SOM (ITV) Limited (1)(a) UK 100 Channel Television Limited (32)(a) Jersey 100 So Television Developments Limited (1)(a) UK 100 ITV London Properties Limited (33)(a) Jersey 100 So Television Limited (1)(a) UK 100 ITV Properties (Jersey) Limited (33)(a) Jersey 100 Talpa Media UK Ltd (1)(a) UK 100 Global Music & Talent Agency B.V. (90)(a) Netherlands 100 Television Music Limited (1)(a) UK 100 ITV (Europe) Holdings B.V.* (55)(a) Netherlands 100 The CITV Channel Limited (1)(a) UK 100 ITV Enterprises B.V. (55)(a) Netherlands 100 The Garden Productions (Film) Limited (1)(a) UK 100 ITV Finance (Europe) B.V. (55)(a) Netherlands 100 The Garden Productions Limited (1)(a) UK 100 MasMedia B.V. (56)(a) Netherlands 100 The London Studios Limited (1)(a) UK 100 Stitchting ‘Derdengelden’ TV Producties (52)(a) Netherlands 100 Unforgotten 3 Ltd (4)(a) UK 100 Talpa Content B.V. (52)(a) Netherlands 100 UTV Limited (34)(a) UK 100 Talpa Fictie B.V. (53)(a) Netherlands 100 VOD Member (ITVA) Limited (1)(a) UK 100 Talpa Germany Holding B.V. (90)(a) Netherlands 100 VOD Member (ITVB) Limited (1)(a) UK 100 Talpa Global B.V. (90)(a) Netherlands 100 WP (NEWCO 1) Limited (1)(a) UK 100 Talpa Non-Spot B.V. (52)(a) Netherlands 100 WP (NEWCO 2) Limited (1)(a) UK 100 Talpa Producties B.V. (52)(a) Netherlands 100 WP (NEWCO 3) Limited (1)(a) UK 100 Utopia B.V. (57)(a) Netherlands 100 WP (NEWCO 4) Limited (1)(a) UK 100 Vorst Media B.V. (99)(a) Netherlands 100 World of Sport Wrestling Limited (1)(a) UK 100 Wardour Street Films B.V. (59)(a) Netherlands 100 World Productions Limited (1)(a) UK 100 ITV Studios Norway AS (73)(a) Norway 100 WP Bodyguard Limited (1)(a) UK 100 ITV Studios Nordic AB (74)(a) Sweden 100 Westcountry Television Limited (1)(a) UK 100 ITV Studios Scandinavia Holdings AB (74)(a) Sweden 100 Yorkshire Television Limited (1)(a) UK 100 Talpa Asia Pte. Ltd. (93)(a) Singapore 100 Yorkshire-Tyne Tees Television Enterprises Limited (1)(a) UK 100 ITV Studios Germany GmbH, Köln, Zweigniederlassung Switzerland 100 Yorkshire-Tyne Tees Productions Limited (1)(a) UK 100 Zürich (75)(m) Zebedee Productions Limited (1)(a) UK 100 12 Yard Holdings, Inc. (68)(j) USA 100 Artist Services Cable Pty Ltd (36)(a) Australia 100 Anglia Television, Inc. (68)(j) USA 100 Artist Services Investments Pty Limited (36)(a) Australia 100 Astrum Productions, LLC (68)(j) USA 100 Artist Services Productions Pty Ltd (36)(a) Australia 100 ITV Blumhouse Holding Inc (63)(j) USA 100 Granada Media International (Australia) Pty Ltd (36)(a) Australia 100 Cardinal Productions of Ohio, Inc. (63)(j) USA 100 Granada Media Investments (Australia) Pty Ltd (36)(a) Australia 100 Carlton Media Company, Inc. (63)(j) USA 100 Granada Productions Pty Ltd (36)(a) Australia 100 Chad Alan Productions, LLC (63)(j) USA 100 ITV Global Entertainment Pty Limited (36)(a) Australia 100 Critical Productions Inc (63)(j) USA 100 ITV Services Pty Ltd (36)(a) Australia 100 Double Down Films, LLC (63)(h) USA 100 ITV Studios Australia Pty Limited (36)(a) Australia 100 Electric Farm Entertainment Holdings Inc. (63)(j) USA 100 Totally Full Frontal Productions Pty Limited (36)(a) Australia 100 Fourth State Productions Inc (108) (j) USA 100 Granada December Eight Limited (38)(a) Cayman Islands 100 Granada Cracker US Productions (68)(j) USA 100 Granada December Nine Limited (38)(a) Cayman Islands 100 Granada Television International, Inc. (63)(j) USA 100 ITV Holdings (Cayman) Limited (39)(a) Cayman Islands 100 Gritty Productions, LLC (63)(h) USA 100 Talpa Chile SpA (94)(a) Chile 100 Hamdon Entertainment, Inc. (63)(j) USA 100 ITV Studios Denmark Holdings Aps (104)(a) Denmark 100 ITC Distribution, LLC (63)(j) USA 100 United Productions ApS (42)(a) Denmark 100 ITC Entertainment Group, Inc (63)(j) USA 100 ITV Studios Finland Oy (43)(a) Finland 100 ITC Films, LLC (63)(j) USA 100 Beaubourg Audiovisuel (50)(a) France 100 ITC Productions, LLC (63)(j) USA 100 ITV Studios France Holdings SAS (95)(a) France 100 ITV Believe Holding, Inc. (63)(j) USA 100 ITV Studios France SAS (95)(a) France 100 ITV Diga Holding, Inc (63)(j) USA 100 Phara Prod International (105)(a) France 100 ITV Entertainment Services Inc.(63)(j) USA 100 Tetra Media Studio SAS (105)(a) France 100 ITV Gritty Holding Inc. (63)(j) USA 100 ITV Studios Germany GmbH (46)(a) Germany 100 ITV Gurney Holding Inc. (63)(j) USA 100 ITV Studios Germany Holdings GmbH (46)(a) Germany 100 ITV HN Holding Inc. (63)(j) USA 100 Talpa Germany Fiction GmbH (96)(a) Germany 100 ITV International Corporation (63)(j) USA 100 Talpa Germany Gmbh & Co KG (47)(a) Germany 100 ITV Leftfeld Holding Inc. (63)(j) USA 100 Talpa Germany Verwaltungs GmbH (47)(a) Germany 100 ITV New Form Holding Inc. (63)(j) USA 100 Elecrent Insurance Limited (31)(a) Guernsey 100 ITV Popco Holding Inc. (63)(j) USA 100

190 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 List of subsidiaries Strategic Report

Company Name Country % Holding Company Name Country % Holding ITV Southpoint Holding Inc (63)(j) USA 100 Malacara Limited (2)(a) UK 36.75 ITV Studios America Inc. (63)(j) USA 100 Harlequin Agency Limited (5)(a) UK 37.5 ITV Studios, Inc. (68)(j) USA 100 Pink Rose Bud Limited (2)(a) UK 37.5 ITV SVOD Holding Inc. (63)(j) USA 100 Mainstreet Pictures Limited (4)(a) UK 38.25 ITV Thinkfactory Holding Inc. (63)(j) USA 100 Unforgotten2 Limited (4) (a) UK 38.25 ITV Tomorrow Holding, Inc. (63)(j) USA 100 Independent Television News Limited (20)(a) UK 40 ITV US Holdings, Inc. (63)(j) USA 100 Cloth Cat Animation Limited (5)(a) UK 41.25 Governance JB Entertainment Holding Company, Inc. (63)(j) USA 100 Cloth Cat LBB Limited (5)(a) UK 41.25 Kirkstall Road Enterprises, Inc. (63)(j) USA 100 Thud Media Limited (5) (a) UK 41.25 Krewed Inc (63)(j) USA 100 OSF (Wales) Limited (5)(a) UK 46.27 Leftfeld Entertainment, LLC (63)(h) USA 100 Oxford Scientifc Films Limited (5)(a) UK 46.27 Leftfeld Pictures of NY Holdings, LLC (63)(j) USA 100 Box Clever Technology Limited (8)(a) UK 50 Leftfeld Pictures of NY, LLC (63)(j) USA 100 Bone Kickers Limited (1)(a) UK 50 Leftfeld Ventures, LLC (63)(j) USA 100 British Film-Makers Limited (1)(a) UK 50 LWT Enterprises Inc. (63)(j) USA 100 Crook Productions Limited (1)(a) UK 50 Moving Pictures Services Inc. (63)(h) USA 100 Digital 3 and 4 Limited (16)(a) UK 50 Oaklawn Pacifc Properties, LLC (65)(h) USA 100 Freesat (UK) Limited (18)(a) UK 50 Over the Pond Productions, Inc. (63)(j) USA 100 Gameface Productions Limited (1)(a) UK 50 Post 460 Inc (63)(j) USA 100 Noho Film and Television Limited (28)(a) UK 50 Quay Street Enterprises, Inc. (63)(j) USA 100 Standard Music Limited (29)(a) UK 50 Red Orange Productions, LLC (68)(j) USA 100 Cirkus Limited (13)(a) UK 51 Sirens Media, LLC (63)(h) USA 100 Possessed Limited (1)(a) UK 51

Sirens Project 1203, LLC (63)(h) USA 100 Bait Studio Limited (5)(a) UK 55 Financial Statements Sirens Project 1223, LLC (63)(h) USA 100 Second Act Productions Limited (1)(a) UK 74.07 Sirens Project 1226, LLC (63)(h) USA 100 Age Before Beauty Limited (4)(a) UK 75 Sirens Project 1227, LLC (63)(h) USA 100 Aim Films Limited (3)(a) UK 75 Sirens Project 1301, LLC (63)(h) USA 100 Boom Cymru TV Ltd (5)(a) UK 75 Sirens Project 1303, LLC (63)(h) USA 100 Boom Pictures Limited (1)(a) UK 75 Sirens Project 1309, LLC (63)(h) USA 100 Cynhyrchiadau Boomerang Cyf (2)(a) UK 75 Sirens Project 1316, LLC (63)(h) USA 100 Double Double Limited (1)(a) UK 75 Sirens Project 1326, LLC (63)(h) USA 100 Gorilla TV Group Limited (5)(a) UK 75 Sirens Project 1408, LLC (63)(h) USA 100 Gorilla TV Limited (5)(a) UK 75 Sirens Project 1410, LLC (63)(h) USA 100 Indus Films Limited (2)(a) UK 75 Sirens Television Development, LLC (63)(h) USA 100 ITV TFG Holdings Limited (1)(a) UK 75 So Television US, Inc. (68)(j) USA 100 Him Productions Limited (4)(a) UK 75 Solowe Productions Inc (63)(j) USA 100 TwoFour Broadcast Limited (3)(a) UK 75 Southsquare Productions Inc. (63)(j) USA 100 Twofour Group Holdings Limited (1)(a) UK 75 Talpa Media USA, Inc. (68)(j) USA 100 TwoFour Group Limited (3)(a) UK 75 Talpa North America Inc. (63)(j) USA 100 3sixtymedia Limited (1)(a) UK 80 Additional information Additional Trailer Park Productions, Inc (63)(j) USA 100 GC Films Pty Limited (36)(a) Australia 49 Upper Ground Enterprises, Inc. (63)(j) USA 100 Think Factory Productions Canada Ltd (77)(j) Canada 65 Work Shop of NY, LLC (63)(h) USA 100 LTP Productions Inc. (63)(h) Canada 75 Zinna Productions (68))(j) USA 100 Apple Tree Productions ApS (101)(a) Denmark 25 Talpa Nordic ApS (41)(a) Denmark 51 Joint ventures and Investments 15.15 Productions (59)(a) France 49 100% Distribution (105)(a) France 50 Company Name Country % Holding Beaubourg Fiction (50)(a) France 50 Absolutely Rights Limited (6)(a) UK 20 Beaubourg Audiovisuel (50)(a) France 50 DTV Services Limited (17)(a) UK 20 Gedesel (107)(a) France 50 That Mitchell and Webb Company Limited (7)(a) UK 20 Funny Corp (105)(a) France 51 Route 24 Limited (24)(a) UK 24.9 Macondo Productions Audiovisueles (105)(a) France 51 Monumental Television Limited (76)(a) UK 24.92 MD 60 (105)(a) France 60 Clearcast Limited (14)(a) UK 25 Tangaro (105)(a) France 65 Koska Limited (105)(a) UK 25 Tetra Media Fiction (105)(a) France 78 Cirkus International Limited (13)(a) UK 28 Shoot Again Productions (105)(a) France 95 Thinkbox TV Limited (23)(a) UK 28.58 Imago TV Film und Fernsehproduktion GmbH (45)(a) Germany 80

191 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Financial Statements

Notes to the ITV plc Company Financial Statements continued

Company Name Country % Holding Company Name Country % Holding The Lab Television 2013 Limited Partnership (78)(a) Israel 50 Film Productions Rentals, LLC (68)(h) USA 65 Cattleya Srl (103)(a) Italy 51 Hatfeld and McCoy Productions, LLC (63)(h) USA 65 Radio Cattleya Srl (103)(a) Italy 51 Highball Music Group, LLC (63)(h) USA 65 Talpa Italia Srl (79)(a) Italy 50 LG Films, LLC (63)(h) USA 65 Think Cattleya Srl (103)(a) Italy 25.5 Marriage Boot Camp Reality Stars, LLC (63)(h) USA 65 Rangers Productions SRL (80)(a) Mexico 65 MDQuartet LLC (63)(h) USA 65 Identity Mansion B.V. (92)(a) Netherlands 25 Roasters LLC (63)(h) USA 65 Pomper & Linders B.V. (98)(a) Netherlands 20 Signal Post Facilities, LLC (63)(h) USA 65 ITV Studios Sweden AB (74)(a) Sweden 96 Sound and Stage Studios, LLC (63)(h) USA 65 Maximum Media Production FZ-LLC (81)(a) UAE 90 Texas Rangers, LLC (63)(h) USA 65 Talpa Arabia Holding Ltd (81)(a) UAE 90 Thinkfactory Group, LLC (63)(h) USA 65 Talpa Middle East FZ-LLC (81)(a) UAE 90 Thinkfactory Media, LLC (84)(h) USA 65 Talpa Middle East Lebanon S.A.R.L (81)(a) UAE 90 Web Legal, LLC (63)(h) USA 65 Electric Farm Entertainment LLC (63)(h) USA 10 Westside Film Partners, LLC (63)(h) USA 65 Britbox, LLC (89)(h) USA 40.5 East Olive Productions LLC (68)(h) USA 75 Blumhouse TV Holdings LLC (63)(h) USA 45 Twofour America, LLC (68)(h) USA 75 Circle of Confusion Television Studios LLC (63)(h) USA 49 Loud Television, LLC (63)(h) USA 75 South Circle Productions LLC (63)(a) USA 49 Next Steps Productions, LLC (63)(h) USA 75 BB Rights, LLC (63)(h) USA 50 Tomorrow ITV Studios LLC (63)(k) USA 75 Jaffe/Braunstein Entertainment, LLC (67)(h) USA 51 Outpost Entertainment, LLC (63)(h) USA 80 Eight Bells Productions, LLC (63)(h) USA 60 High Noon East, LLC (69)(h) USA 60 Memberships, Partnerships and Companies Limited High Noon Group, LLC (69)(h) USA 60 by Guarantee High Noon Productions, LLC (69)(h) USA 60 Company Name Country % Holding High Noon West, LLC (69)(h) USA 60 ITV LTVC Scottish Limited Partnership (30)(h) UK 100 Feeding Time Productions, LLC (86)(h) USA 61.5 ITV Scottish Limited Partnership (30)(h) UK 100 FT Productions, LLC (63)(h) USA 61.5 Digital Production Partnership Limited (1)(i) UK 50 Gurney Productions, LLC (68)(h) USA 61.5 Producers Rights Agency Limited (25)(i) UK 50 Hollywood Camera and Lighting, LLC (68)(h) USA 61.5 DTT Multiplex Operators Limited (17)(i) UK 25 RICMA, LLC (68)(h) USA 61.5 Digital UK Limited (17)(i) UK 25 Yukon RAFT Productions, LLC (88)(h) USA 61.5 ITV Netherlands Co-operatief W.A (55)(h) Netherlands 100 Crew Ready Everywhere, LLC (63)(h) USA 65 DGK 5, LLC (63)(h) USA 65

192 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 List of subsidiaries Strategic Report

Address key (61) 1633 Bayshore Highway, Suite 320, Burlingame CA 94010, USA (1) The London Television Centre, Upper Ground, London, SE1 9LT, United Kingdom (62) 3867 Plaza Tower, 1st Floor, Baton Rouge, Los Angeles CA 70816, USA (2) 218 Penarth Road, Cardiff, CF11 8NN, United Kingdom (63) The Corporation Trust Company, Corporate Trust Center, 1209 Orange Street, (3) Twofour Studios, Estover, Plymouth, Devon, PL6 7RG, United Kingdom Wilmington, Newcastle, DE 19801, USA (4) Kingsbourne House, 229–231 High Holborn, London, WC1V 7DA, United Kingdom (64) Corporation Service Company, 2711 Centreville Road (Suite 400), Wilmington, (5) Gloworks, Porth Teigr Way, Cardiff, Wales, CF10 4GA, United Kingdom Newcastle DE 19808, USA (6) 18 The Glasshouse Studios, Fryern Court Road, Fordingbridge, Hampshire, SP6 1NG, (65) The Corporation Trust Company, 311 South Division Street, United Kingdom Carston City NV 89703, USA (7) 26 Nassau Street, London, W1W 7AQ, United Kingdom (66) United Corporate Services, Inc., 874 Walker Road (Suite C), Dover, Governance (8) 5 New Street Square, London, EC4A 3TW, United Kingdom Kent DE 19904, USA (9) 20 Cathedral Road, Cardiff, CF11 9LJ, United Kingdom (67) 321 Southern Beverly Drive, Suite M, Beverly Hills, CA 90212, USA (10) 9 Mansfeld Street, London, W1M 9FH, United Kingdom (68) CT Corporation System, 818 West Seventh Street, Suite 930, Los Angeles, (11) 20 Orange Street, 3rd Floor, London, WC2H 7EF, United Kingdom CA 90017, USA (12) 21 Hatton Gardens (Room 9), London EC1N 9BA, United Kingdom (69) The Hodson Law Firm, 1129, East 17th Avenue, Denver, CO 80014, USA (13) The Met Building, 22 Percy Street, London, W1T 2BU, United Kingdom (70) CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, (14) 4 Roger Street, 2nd Floor, London, WC1X 2JX, United Kingdom NY 10011, USA (15) c/o Creative Skillset, 1-3 Grosvenor Place, Fifth floor (Suite 5B), London, SW1X 7HJ, (71) 21 Holborn Viaduct, London, EC1A 2DY, United Kingdom United Kingdom (72) 120 West 3rd Avenue #201, Vancouver, BC VSY 1EG, Canada (16) 124 Horseferry Road, London, SW1P 2TX, United Kingdom (73) Starvhusgaten 2A, Bergen, 5014 Norway (17) 27 Mortimer Street, London, W1T 3JF, United Kingdom (74) Soder Malarstrand 65, 11825, Stockholm, Sweden (18) 23-24 Newman Street, London, W1T 1PJ, United Kingdom (75) Scharenmoosstrasse 105, 8052, Zurich, Switzerland (19) Unit 8 Acorn Production Centre, R/O 105 Blundell Street, London, N7 9BN, (76) 9 St. Peters Street, London, N1 8JD, United Kingdom United Kingdom (77) Bucchil Goldstein LLP, 662 King Street West, Suite 304, Toronto ON (20) 200 Gray’s Inn Road, London, WC1X 8HF, United Kingdom M5V 1M7, Canada (21) Clay Barn, Ipsley Court, Berrington Close, Redditch, Worcestershire, B98 0TD, (78) 23 Habarzel Street, Tel Aviv, 69710, Israel United Kingdom (79) Via Enrico, Tazzoli 6, Rome, Italy (22) 10 Lower Thames Street, (Third Floor), London, EC3R 6YT, United Kingdom (80) Gonzales Carillo, SC Abogados, Montes Urales no 632, Piso 3, Lomas de Chapaltpec, (23) Manning House, 22 Carlisle Place, London, SW1P 1JA, United Kingdom DF 11000, Mexico (24) York House, Empire Way, Wembley, Middlesex, HA9 0FQ, United Kingdom (81) Building 2, Dubai Media City, Dubai, UAE (25) Fitzrovia House, (3rd Floor), 153-157 Cleveland Street, London, W1T 6QW, (82) 3035 South Parker Road, Suite 500, Denver, CO 80014, USA United Kingdom (83) eResident Acent Inc. 12121 Wilshire Boulevard ~1201, Los Angeles, CA 90025, USA Financial Statements (26) Round Foundry Media Centre, Foundry Street, Leeds, LS11 5QP, United Kingdom (84) 1640 South Sepulveda Boulevard, Suite 300, Los Angeles, CA 90025, USA (27) c/o Archery Pictures, 3 Archery Close, London, W2 2BE, United Kingdom (85) CT Corporation System, 306 Main Street, Suite 512, Frankfort, KY 40601, USA (28) 59 Charlotte Street, (Third Floor), London, W1T 4PE, United Kingdom (86) CT Corporation System, 3867 Plaza Tower Drive East Baton Rouge Parish, (29) Roundhouse, 212 Regent’s Park Road, London, NW1 8AW, United Kingdom Baton Rouge, LA 70816, USA (30) Quartermile One, 15 Lauriston Place, Edinburgh, Scotland, EH3 9EP, (87) 24955 Pacifc Coast Highway, Suite C302, Malibu, CA 90265, USA United Kingdom (88) Incorp Services Inc, 101 E. 9th Avenue, Suite 12-B, Anchorage, (31) P.O. Box 308, St. Peter Port House, Union Street, St. Peter Port, GY1 3TA, Guernsey AK99501-3651, USA (32) Le Capelain House, Castle Quay, St. Helier, JE2 3EH, Jersey (89) 1120 Avenue of Americas, 5th Floor, New York, NY10036, USA (33) Ogier House, The Esplanade, St. Helier, JE4 9WG, Jersey (90) Family de Mollaan 1, 1217 ZB Hilversum, Netherlands (34) Ormeau Road, Belfast, Northern Ireland, BT7 1EB, United Kingdom (91) 15000 Ventura Blvd, Suite 202, Sherman Oaks, CA 91403, USA (35) 5 Cromac Avenue, The Gasworks, Belfast, Northern Ireland, BT7 2JA, (92) Westersingel 108, 3015 LD Rotterdam, Netherlands United Kingdom (93) 198A Telok Ayer Street, Singapore 068637, Singapore (36) Level 5, Building 61, Fox Studios Australia, 38 Driver Avenue, Moore Park (94) calle Cerro El Plomo 5855, ofcina 1605, comuna de Las Condes, NSW 2021, Australia Region Metropolitana, Chile (37) c/o Addisons, Level 12, 60 Carrington Street, Sydney NSW 2000, Australia (95) 38 Quai du Point du Jour 92100 Boulogne-Billancourt, France (38) Appleby Corporate Services (Cayman) Limited, Clifton House, (96) Gethiner Strasse 5, 10785, Berlin, Germany 75 Fort Street, P.O. Box 190 GT, Georgetown, Grand Cayman, KY1-1108, (97) August-Bebel Strasse 58, 15711, Konigs Wusterhausen, Germany Cayman Islands (98) Keizersgracht 149a, 1015CL, Amsterdam, Netherlands (39) c/o Appleby Trust (Cayman) Limited, Clifton House, 75 Fort Street, (99) Hollandse Kade 34, 1391JM, Abcoude, Netherlands P.O. Box 1350, Georgetown, Grand Cayman, KY1-1108, Cayman Islands (100) Ormeau Road, Belfast, Northern Ireland, BT7 1EB, United Kingdom (101) Aumento Advokatfrma, Ny Osteragde 3,4, 1101, Kobenhavn, Denmark (40) Ugland House, P.O. Box 309, South Church Street, Georgetown, Grand Cayman, information Additional Cayman Islands (102) 101 avenue Victor Huge, 921010, Bologne-sur-Mer, France (41) Mosedalvej 14, 2500, Valby, Copenhagen, Denmark (103) Piazzale Valerio Massimo, 7, 00162, Roma, Italy (42) Finsensvej 6E, 2000, Frederiksberg, Denmark (104) DLA Piper Denmark, Radhuspladsen 4, 1550 Kobenhavn V, Denmark (43) Elimaenkatu 9 A, Helsinki, 00510, Finland (105) 60 Rue Marcel Dassault, 92100, Boulogne-Billancourt, France (44) 23 Rue Montorgueil, 75001, Paris, France (106) Jessop House, Jessop Avenue, Cheltenham, Gloucestershire GL50 3WG, (45) Keplerstrasse 4-6, 10589, Berlin, Germany United Kingdom (46) Agrippastraße, 87-93, 50676, Köln, Germany (107) 4 Rue de Commaille, 75007, Paris, France (47) Jenfelder Allee 80, 22039, Hamburg, Germany (108) CT Corporation System, 289 S. Culver Street, Lawrenceville, GA, 30046-4805, USA (48) 11/F, Unit B, Winbase Centre, 208 Queen’s Road Central, Sheung Wan, Hong Kong (49) Rooms 517–520, 5th Floor, Sun Hung Kai Centre, 30 Harbour Road, Wan Chai, Hong Kong (50) 5–7 Rue, Saint-Augustin, 75002, Paris, France (51) Mayor Street Upper, Dublin , DUBLIN 1, Ireland Interest key (52) Familie de Mollaan 1, 1217 ZB, Hilversum, Netherlands (53) Haarlemmer Houttuinen, 21 1013 GL, Amsterdam, Netherlands (a) Ordinary (h) Membership/Partnership (54) Heemraadssingel 180, 3021 DL, Rotterdam, Netherlands (b) Deferred (i) Guarantee (55) Hoogoorddreef 15, 1101 BA, Amsterdam, Netherlands (c) Special deferred (j) Common (56) Noorderweg 8, 1221 AA, Hilversum, Netherlands (d) Redeemable preference (k) preference (57) Zevenend 45, 1251 RL, Laren, North Holland, Netherlands (e) Cumulative preference (l) Part preference (58) Voorstraat 61, 4797 BE, Willemstad, Netherlands (f) Cumulative redeemable preference (m) Branch (59) 10 Rue Maitre Jacques, 92100 Boulogne, Billancourt, France (g) Convertible preference * Direct subsidiary (60) 121 West Lexington Drive, Suite 401, Glendale CA 91203, USA

193 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Additional Information

Glossary

Advertiser funded platform – platforms Long-form video requests – measured Over-the-top (OTT) – delivery that include advertising as part of the user across all platforms, based on data from of audio, video, and other media over experience e.g. itv.com, iOS, and Android comScore Digital Analytix, Crocus, Virgin, BT, the internet, this includes content iTunes, Netflix, Amazon Video and Sky and from providers such as Netflix, Amazon Broadcasters’ Audience Research include simulcast (in November 2017 we and Hulu and also our own on demand Board (BARB) – organisation owned by moved from comScore Digital Analytix service, the ITV Hub broadcasters and advertisers providing to Crocus, an in-house analytics system). data on linear and online television A long-form video is a programme that SDN – multiplex operator owned by ITV, viewing statistics by UK households has been broadcast on television and is which operates one of the eight national available to watch online and on demand multiplex licences in the UK on Freeview Catch up viewing – non-live viewing in its entirety of recently broadcast television Share of Broadcast (SOB) – ITV’s share programmes, either via a recording device Long-form online viewing (consumption) of UK television advertising revenue (NAR), (often called a PVR or DTR) such as Sky+ – total number of hours ITV VOD content a measure of market share or through a Video on Demand service is viewed on ad funded platforms (such as such as the ITV Hub, BBC iPlayer, All 4 or My5 on mobile, tablet and PC), based on data Share of Commercial Impacts (SOCI) – from ComScore Digital Analytix and Crocus the term used to defne the share of Channel 3 licences – the 15 regional total UK television commercial impacts licences and one national licence awarded Media sales commission – commission delivered by one channel or group of to transmit Channel 3 across the UK. All are earned by ITV plc on sales of airtime on channels. This measure excludes viewing owned by ITV with the exception of two behalf of the non-consolidated licensees of BBC channels as they do not generate of the regional licences which are owned commercial impacts. Unless stated by STV Net Advertising Revenue (NAR) – the otherwise, SOCI fgures cited throughout amount of money received by a broadcaster this report are based on BARB data and Contract Rights Renewal (CRR) – the as payment for television spot advertising are based on the universe of Adults (16+) remedy agreed by Carlton and Granada net of any commission paid to agencies in 2003 as a pre-condition of the merger, Share of Viewing (SOV) – the share of which governs the way in which ITV airtime Total Schedule Costs/Total Network the total viewing audience during a defned is sold by ITV to its advertising customers Programme Budget (NPB) – the budget period gained by a programme or channel. spent on programming broadcast on the This measure includes viewing of BBC Free-to-Air (FTA) television – viewing ITV family of channels, including spend on channels. Unless stated otherwise, SOV of television through devices not requiring regional programming and ITV Breakfast fgures cited throughout this report are a subscription such as the Freeview or based on BARB data and are based on Freesat services Non-consolidated licensees – the the universe of individuals two regional channel 3 licences which ITV High Defnition (HD) – channels or services does not own. These licences are owned Simulcast – streaming live TV channels via broadcast in substantially higher resolution by STV and revenues received from these a broadcaster’s on demand service, at the than standard, providing improved licences for ITV programming content are same time as broadcast on linear TV picture quality referred to as minority revenues Spot advertising – linear television Impact or Commercial Impact – one Non-NAR revenue – includes all ITV advertising occupying a short break during Commercial Impact is defned as one revenue, both internal and external, except or between programmes viewer watching one 30-second net advertising revenue (NAR). This includes television commercial inter-segment revenue from the sale of ITV Subscription Video on Demand (SVOD) – Studios shows to the ITV network a paid for service where subscribers have ITV Family – the ITV family of channels access to a wide range of content whenever which includes ITV, ITV2, ITV3, ITV4, ITVBe, Ofcom – communications regulator in the they request it ITV Encore, CITV, ITV Breakfast, CITV UK who regulate the TV, radio and video- Breakfast and all associated +1 and HD on-demand sectors, fxed-line telecoms Video on Demand (VOD) – the ability equivalents. (phones), mobiles and postal services, to deliver video content to a customer’s plus the airwaves over which wireless television set, computer or device when Linear television – television service devices operate the customer requests it where the viewer has to watch a scheduled TV programme at the particular time it’s YouView – a joint venture (with the BBC, offered, and on the particular channel Channel 4, Channel 5, BT, TalkTalk, and it’s presented on Arqiva) to operate and promote a hybrid television platform combining Freeview channels with catch up and on demand services

194 ITV plc Annual Report and Accounts 2017 WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 Printed in the UK by Pureprint using vegetable inks and their and Pureprint environmental printing technology.

Pureprint is a CarbonNeutral® company. Both manufacturing mill and the printer are registered to the Environmental Management System ISO14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified.

Designed and produced by WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8 for the year ended 31 December 2017 December 31 ended year the for Accounts and Report Annual plc ITV

ITV plc The London Television Centre Upper Ground London SE1 9LT

www.itv.com Investors: www.itvplc.com Stock code: ITV WorldReginfo - f9b37c99-cad9-4c55-8ea5-1ea728d3a0b8